Environmental, social and governance (ESG) disclosure is widely regarded as a key instrument for promoting corporate accountability and sustainable development; yet, its effectiveness is often undermined by greenwashing and imperfect information authentication. Although blockchain technology is increasingly advocated to enhance ESG transparency through immutability, it does not guarantee the authenticity of information before data entry. This study examines whether and how blockchain-enabled ESG reporting can incentivize costly ESG improvements and improve welfare when ESG authentication is imperfect and publicly understood.
We develop a supply chain model with an upstream supplier and a downstream retailer, in which ESG performance is imperfectly authenticated and recorded on a blockchain. The retailer observes noisy ESG authentication outcomes and offers outcome-contingent wholesale prices to incentivize the supplier’s ESG improvement. Consumers are aware of authentication imperfections and update their beliefs accordingly, which affects market demand. Equilibrium outcomes are derived analytically.
We show that (1) under medium authentication accuracy, the supplier’s ESG investment is non-monotonic, with investment only at low or high improvement levels due to weak demand responses. (2) Increasing authentication accuracy affects profits asymmetrically: the retailer’s profit follows a U-shaped pattern, while the supplier’s profit is hump-shaped, reflecting a trade-off between incentive costs and informational rents. (3) We further identify conditions under which blockchain-enabled ESG reporting yields a “win-win” outcome, improving both supply chain profitability and environmental performance.
This study explicitly incorporates imperfect ESG authentication into blockchain-enabled reporting and highlights the economic role of blockchain in aligning ESG incentives, consumer demand and sustainable investment.
