| Summary: | Products are routinely labeled “carbon neutral,” “recycled,” “biode¬gradable,”
“ocean-friendly,” and “sustainable.” Bonds are marketed as “green” and mutual
funds as “ESG,” while firms may pledge to become “net zero.” But are statements
concerning environmental qualities re-liable? It is often hard for consumers and
investors to tell. Environmental qualities tend to have credence attributes; they
cannot be verified even after consumption. Green gatekeepers constitute an
increasingly important response to this problem. Occasionally required by law
but more often enlisted voluntarily by firms, green gatekeepers certify claims
made about the green qualities of products or firms, promising to significantly
mitigate information asymmetries between firms and certification users. After
distinguishing green gatekeepers from highly reputation-sensitive traditional
gatekeepers in financial markets, we argue that green gatekeepers face weaker
reputational constraints than traditional ones. Consequently, they are more
likely to issue inaccurate certifications. We hand-code data on over 450 green
gatekeepers, and we show that many of these gatekeepers are opaque, as in
many instances they do not even disclose the standards they follow. We then
propose a framework for regulation based on a classification that allows us, first,
to identify which green gatekeepers are unlikely to be adequately constrained by
reputational mechanisms and, second, to discern instances in which policymakers
might be able to craft appropriate regulatory responses. From this framework, we
derive several policy strategies and explore how they may apply to a sample of
prominent green gatekeepers.
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