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Article

The Impact of Fraud Perception and ESG-Washing on Investment Trust: Integrating Corporate Governance Theory and Empirical Evidence

by
Ioannis Passas
* and
Alexandros Garefalakis
Department of Business Administration & Tourism, Hellenic Mediterranean University, 71410 Heraklion, Greece
*
Author to whom correspondence should be addressed.
Account. Audit. 2025, 1(3), 9; https://doi.org/10.3390/accountaudit1030009
Submission received: 11 August 2025 / Revised: 9 September 2025 / Accepted: 17 September 2025 / Published: 25 September 2025
(This article belongs to the Special Issue Rethinking ESG and CSR: Advancing Transparency and Integrity in Corporate Governance)
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Abstract

This study investigates the credibility of disclosures and examines the reporting protocols in place, utilizing logistic regression models. While various background factors were analyzed, certain associations emerged. This suggests that the logistic regression analysis, bolstered by diagnostic checks such as (ROC AUC, Brier score, and the Hosmer–Lemeshow test), provides robust evidence and strengthens the empirical foundation of the research. These methodological enhancements contribute to the theoretical integration of signaling and legitimacy perspectives, while also offering practical implications for regulatory frameworks. Overall, this work aims to enhance investor confidence and support credibility in the field.

1. Introduction

This paper contributes to the literature by being one of the first to empirically examine the interaction between perceptions of financial fraud and the credibility of ESG disclosure in shaping investment trust. While prior studies have largely examined these domains separately, our results demonstrate a spillover effect: scepticism toward financial reporting undermines confidence in sustainability disclosures. This contribution is meaningful as it advances the integration of financial and non-financial reporting credibility within a unified corporate governance framework.
The remainder of the paper is structured as follows. Section 2 reviews the relevant literature on corporate fraud, ESG disclosures, and ESG-washing. Section 3 describes the data and methodology. Section 4 presents the empirical results. Section 5 discusses the findings in relation to theory and policy, and Section 6 concludes with implications and directions for future research.
Corporate misconduct, whether manifested in the form of financial fraud or in the more recent emergence of environmental, social, and governance (ESG) washing, continues to pose a significant threat to the credibility and stability of global markets. Such practices undermine the reliability of corporate disclosures, distort the allocation of resources, and weaken the relationship of trust between corporations, investors, and the wider public. While financial fraud has a long-documented history, spanning from early market speculation to modern-day accounting scandals, ESG-washing represents a contemporary yet equally pressing risk to market integrity [1,2]. Both practices share a common reliance on exploiting information asymmetries and deficiencies in monitoring systems, allowing for the projection of compliance and ethical behavior without corresponding substantive action [3]. For example, Dyck, Morse & Zingales (2010) provide empirical evidence on how corporate fraud undermines trust and resource allocation [1].
Over the past two decades, the rapid growth of ESG-focused investment has reshaped expectations for corporate accountability and transparency. Policymakers, investors, and civil society actors are increasingly demanding robust sustainability reporting, recognizing its capacity to capture material non-financial risks and opportunities that conventional accounting systems may overlook [4,5]. In principle, high-quality ESG reporting should empower stakeholders to make more informed decisions, align capital flows with sustainable business practices, and enhance long-term value creation. However, in practice, the coexistence of voluntary disclosure regimes and fragmented global reporting standards has left considerable room for selective and, at times, misleading communication of ESG performance [6]. In this context, ESG-washing has emerged as a reputational and financial hazard, capable of influencing investor behaviour in ways analogous to the market effects of misstated financial statements [7]. It should be noted that new international standards, particularly ISSB S1 and S2, explicitly aim to address this challenge, though their implementation is still at an early stage.
Academic research increasingly recognises parallels between financial fraud and ESG-washing, emphasising their mutual dependence on the fragile nature of trust and the centrality of transparency in sustaining capital markets [8,9]. When investor confidence is compromised, both types of misconduct can have cascading effects—from reduced market participation to systemic instability—that extend beyond the immediate actors involved. This conceptual convergence underscores the need for integrated governance frameworks that encompass the verification of both financial and non-financial disclosures within a unified assurance framework [9]. In such a system, internal audit functions, external assurance providers, and regulatory oversight bodies play complementary roles in ensuring the integrity of disclosure. Nevertheless, a notable gap remains in empirical research examining how these governance structures influence investor decision-making in the specific context of ESG-washing [10]. While new regulatory initiatives, such as ISSB S1 and S2, are promising, concerns about ESG-washing persist due to fragmented adoption and mixed evidence on their early effectiveness [11,12].
The present study aims to address this gap by analyzing the perceptions and experiences of professionals involved in investment-related decisions, with a focus on the prevalence, detection, and consequences of both financial fraud and ESG-washing. Using survey-based empirical data, the analysis examines how these forms of misconduct impact trust in corporate disclosures, influence investment preferences, and interact with evolving regulatory frameworks. By situating the findings within a historical and theoretical context, the study aims to enrich academic understanding while providing practical guidance for regulators, policymakers, and corporate leaders committed to maintaining transparency and protecting market integrity [13].
Accordingly, the research question guiding this study is: Does the perception of financial fraud influence investor trust in ESG disclosures, and how does this shape investment decision-making?

2. Literature Review

Recent scholarship has highlighted the need to integrate legitimacy theory, signaling theory, and behavioral finance to understand better how ESG-washing and financial misrepresentation jointly influence investor perceptions. These perspectives underscore that the credibility of ESG disclosure remains contested and that persistent trust gaps undermine the effectiveness of sustainability communication.
Building on this, recent literature (2022–2024) emphasizes the divergence of ESG ratings [14], the negative impact of greenwashing on employee trust [2], and the symbolic rather than substantive role of assurance practices [15]. Together, these studies illustrate the complexity of sustaining credibility in both financial and non-financial disclosures.
Additionally, the study by [7] provides further evidence of ESG-washing, as it reveals discrepancies between disclosed and actual practices through institutional investors’ site visits in China. This study highlights the increasing importance of monitoring mechanisms in detecting corporate greenwashing and complements our focus on investor perceptions of disclosure credibility.
Our study of corporate misconduct has long been a central focus of research in accounting, finance, and governance. Historical cases, ranging from the South Sea Bubble in the 18th century to contemporary scandals involving multinational corporations, demonstrate how fraudulent practices often emerge when regulatory oversight is weak, incentives are misaligned, and information asymmetry persists between managers and stakeholders [11,14,15]. The collapses of Enron Corporation—Houston, TX, USA, and WorldCom, Inc.—Clinton, MS, USA, in the early 2000s triggered sweeping reforms, most notably the Sarbanes–Oxley Act, which aimed to restore investor confidence by enhancing accountability and internal controls [16]. These events underscored the importance of reliable disclosures as a foundation of efficient capital markets.
In parallel, the growing prominence of sustainability has introduced new dimensions of corporate transparency. Frameworks such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and, more recently, the Corporate Sustainability Reporting Directive (CSRD) sought to standardize ESG disclosures and improve comparability [17,18,19,20]. Yet, despite regulatory progress, variability in reporting quality persists. Many firms adopt symbolic rather than substantive practices, giving rise to ESG-washing, which resembles financial fraud by distorting information flows and misrepresenting performance to stakeholders [21,22,23,24].
Theoretical perspectives help explain why both financial fraud and ESG-washing endure despite regulation. Agency theory highlights that information asymmetry incentivises opportunistic managerial behaviour [19]. Legitimacy theory suggests organisations may engage in selective disclosures to secure societal approval, even if these are misleading [18]. Stakeholder theory emphasises the diverse expectations of different audiences, which create both pressure and opportunities for misrepresentation [19]. Finally, behavioral finance highlights how investor decision-making is influenced by trust, reputation, and signals, rendering both accurate and misleading disclosures significant determinants of capital flows [20].
From a signalling perspective, ESG disclosures operate as mechanisms to reduce information asymmetry between firms and investors. However, when such signals are perceived as misleading, they distort investor decision-making and erode trust. From a legitimacy perspective, ESG-washing reflects attempts by firms to maintain societal approval through symbolic compliance, but such strategies ultimately undermine legitimacy when stakeholders perceive inconsistency between words and actions. These theoretical lenses help explain why perceptions of financial fraud can spill over into attitudes toward ESG disclosures.
Empirical research further confirms that perceptions of corporate integrity affect both investor trust and firm valuation [15,25]. Studies on greenwashing show that exaggerated sustainability claims erode confidence, cause reputational damage, and harm long-term value [21,22]. High-profile cases, including the Volkswagen emissions scandal and debates on the true environmental impact of green bonds, demonstrate how ESG-washing can destabilise markets by diverting capital toward unsustainable activities. These examples reinforce the parallels between traditional financial misrepresentation and ESG-related misconduct, particularly their shared exploitation of credibility gaps in reporting.
Nevertheless, despite the extensive literature on corporate fraud and, separately, on ESG-washing, little research has explored their interplay in shaping investor perceptions. While prior studies examined the role of mandatory versus voluntary reporting [18,26,27] and the effects of assurance on stakeholder trust [6,10,25], the connection between experiences of financial fraud and attitudes toward ESG disclosures remains underexplored. This represents a critical gap, as exposure to misleading financial reporting may shape how stakeholders interpret sustainability information and judge its credibility.
The present study addresses this gap by combining historical and theoretical insights with empirical survey data to examine how perceptions of financial misrepresentation influence trust in ESG disclosures and, ultimately, investment decisions. By situating ESG-washing within the broader continuum of corporate integrity challenges, the research provides a more nuanced understanding of how traditional and sustainability-related misconduct jointly affect market trust. This approach also responds to calls for a more holistic view of corporate transparency, one that integrates financial and non-financial reporting within a unified governance framework [6,28,29,30].

3. Data and Methods

To ensure robustness, the methodological design followed a sequential approach. First, descriptive statistics and cross-tabulations (with Chi-square tests) were used to summarise respondent demographics and explore associations. Subsequently, logistic regression analysis was introduced to test whether these associations persist when controlling for multiple predictors. This two-step strategy links descriptive insights with inferential analysis, providing a coherent empirical framework.
To guide the empirical analysis, we developed the following hypotheses:
H1: 
Perceptions of financial fraud are positively associated with scepticism toward ESG disclosures.
H2: 
Trust in mandatory ESG disclosures increases the likelihood that ESG-washing reduces investor trust.
H3: 
Demographic characteristics (gender, age, profession) do not significantly moderate perceptions of ESG disclosure credibility.
The empirical analysis in this study is based on primary data collected through a structured questionnaire designed to assess perceptions of ESG-washing, trust in ESG disclosures, investment preferences, and the influence of prior perceptions of corporate financial misconduct. The questionnaire was distributed between 1 October 2024 and 6 March 2025, for postdoc purposes, to a purposive sample of professionals engaged in auditing, corporate finance, public administration, academia, and sustainability consulting.
To address the research gap identified in the literature, this study employs a quantitative research design based on primary survey data. The methodological approach was selected to capture stakeholders’ perceptions of ESG-washing, trust in ESG disclosures, and the influence of prior experiences with financial misrepresentation on investment decision-making. A survey instrument was deemed suitable for this purpose, as it enables the systematic collection of comparable responses from a diverse respondent base while allowing for the measurement of attitudes, beliefs, and behavioural intentions [1].

3.1. Survey Design and Instrument

The questionnaire was developed following an extensive review of existing literature on corporate fraud, ESG reporting, and greenwashing practices [2,6,21,31]. Questions were designed to reflect the theoretical constructs discussed in Section 2, including trust in corporate reporting, perceived frequency of misleading financial disclosures, and attitudes toward mandatory and voluntary ESG reporting. The instrument comprised both closed-ended and multiple-choice items, structured to facilitate descriptive, inferential, and cross-tabulation analyses. Demographic questions were included to capture respondent characteristics such as gender, age group, educational background, and professional sector, allowing for the examination of potential differences in perceptions across subgroups.

3.2. Sampling and Data Collection

The survey was disseminated electronically to a targeted sample of professionals, academics, and investors across multiple sectors, including finance, academia, and the public sector. This purposive sampling strategy was adopted to ensure that participants possessed sufficient familiarity with financial reporting and sustainability disclosures to provide informed responses. While the non-probability sampling limits generalisability, it provides valuable insights into the perceptions of a relevant and engaged respondent group [32].

3.3. Variables and Measures

Key variables include:
  • Perceived frequency of misleading financial reporting is significantly associated with the impact of ESG-washing on investment trust (χ2(8) = 16.19, p = 0.040).
  • Perceptions of ESG-washing (categorised as “systematic,” “occasional,” “rare,” or “non-existent”).
  • Trust in ESG disclosures (distinguishing between mandatory and voluntary reporting).
  • Impact of ESG-washing on investment trust (ordinal categories reflecting the degree of negative influence).
  • Demographic characteristics (gender, age, education, professional sector).
These variables were operationalized to align with established constructs in prior research [15,21,31], while enabling cross-tabulations to examine potential relationships between demographic factors, previous experiences, and ESG-related perceptions.

3.4. Analytical Procedures

The analysis was conducted in three stages. First, descriptive statistics were computed to summarise respondent demographics and the distribution of key variables. Second, cross-tabulations with Chi-square tests were applied to examine associations between demographic characteristics, perceptions of ESG-washing, trust in disclosures, and investment behaviour. This approach is consistent with earlier research that has explored socio-demographic influences on perceptions of corporate transparency [13]. Third, a binary logistic regression model was estimated to test whether ESG-washing was perceived as negatively affecting investment trust (coded 1 = Negatively, 0 = Does not particularly affect). Independent variables included: (a) perceived influence of financial fraud on investment decisions (ordinal 0–2), (b) perceived frequency of misleading financial reporting (ordinal 0–3), (c) trust in mandatory ESG disclosures (1 = Yes, 0 = No), and (d) participation in investment decision-making (1 = Yes, 0 = No). Odds ratios (OR) with 95% confidence intervals were reported to facilitate interpretation.
Diagnostic tests—including McFadden pseudo-R2, AIC, BIC, ROC AUC, Brier score, Hosmer–Lemeshow χ2, variance inflation factors (VIF), and Cook’s distance—were performed to assess model validity. Statistical significance was evaluated at the 5% level (p < 0.05), and results are reported in Section 4.
This structured methodological approach systematically links theoretical insights from the literature with empirical evidence, providing a robust basis for interpreting the relationship between historical perceptions of fraud, ESG disclosure credibility, and investment decision-making. To ensure valid model estimation, the logistic regression was based on 81 valid responses after listwise deletion of cases with missing data on predictor variables. While the original survey included 133 participants, incomplete responses on key independent variables reduced the effective sample size for the regression analysis.

4. Results

The analysis is presented in two main parts: first, descriptive statistics outlining respondents’ demographic and attitudinal profiles, and second, the results of inferential tests examining the associations between perceptions of financial misrepresentation, ESG-washing, trust in disclosures, and investment behavior.

4.1. Descriptive Statistics

As we mentioned, the empirical analysis is based on 133 completed questionnaires from professionals working in finance, auditing, corporate governance, and sustainability-related fields. This targeted sampling aimed to capture informed perspectives on the prevalence, impact, and governance challenges of financial fraud and ESG-washing. The questionnaire combined frequency-based measures with evaluative questions, allowing for both quantitative pattern recognition and interpretation within established theoretical frameworks (see Appendix A).
The distribution of responses regarding the frequency with which inaccurate or manipulated financial statements mislead investors is noteworthy (Figure 1). A combined 45.9% of respondents reported encountering such practices either very frequently (22.6%) or frequently (23.3%), while 33.8% indicated they observe them rarely and 19.5% stated almost never. These results underscore the continued salience of fraudulent reporting despite decades of regulatory refinement, echoing the argument by Rezaee [33] and Perols et al. [34] that fraudulent practices adapt to oversight mechanisms and persist by exploiting emergent informational asymmetries.
Turning to the perceived prevalence of ESG-washing, the data reveal that 31.6% believe such practices occur systematically and 30.1% consider them common, though not always intentional (Figure 2). In contrast, 25.6% regard ESG data as reliable, while 12.8% express no opinion. These findings are consistent with Lyon and Montgomery’s [35] conceptualisation of greenwashing as a deliberate strategic communication and with Testa et al.’s [36] analysis of institutional complexity, which enables selective ESG disclosure. Within the lens of legitimacy theory, such practices can be interpreted as symbolic attempts to preserve organisational legitimacy, while stakeholder theory emphasises their role in selectively influencing key constituencies.
When respondents were asked about the comparative reliability of ESG disclosures, 63.2% expressed greater trust in mandatory reporting frameworks, 21.1% believed voluntary disclosures can be more detailed, and 15.8% had no opinion (Figure 3). This preference aligns with findings by Ioannou and Serafeim [37] and Christensen et al. [38], who demonstrate that regulatory compulsion enhances comparability and reduces the scope for selective omission. Behaviourally, mandatory frameworks may function as credibility heuristics, leading stakeholders to assign greater weight to such disclosures when evaluating corporate performance.
The influence of ESG compliance on investment decisions further illuminates the interplay between ethical and financial considerations (Figure 4). While 36.8% of respondents stated that ESG criteria do not influence their decision-making, 33.8% indicated they would invest in non-compliant firms but with reservations, and 29.3% preferred not to invest in such firms at all. This distribution suggests that although values-based screening is not universal, it remains a substantial determinant for a significant proportion of investors, supporting the observations of Statman and Glushkov [39] and Riedl and Smeets [40] regarding the integration of sustainability criteria into investment practice.
The reported effects of ESG-washing on trust are especially pronounced (Figure 5). A majority (54.9%) indicated it affects their trust negatively, 21.8% stated it does not particularly affect their trust, and 23.3% expressed no opinion. These findings resonate with Guiso et al. [41], who argue that trust is a critical intangible asset in financial markets, and with Krüger [42], who shows that negative CSR-related events can depress firm valuation over the long term. The results emphasise that reputational damage from ESG-washing can be as detrimental as that stemming from overt financial fraud.
Taken collectively, these findings demonstrate the interconnectedness of financial fraud and ESG-washing: both are sustained by information asymmetries, both exploit verification gaps, and both exert measurable influence on investor behaviour and market efficiency. The strong preference for mandatory ESG disclosures further reinforces scholarly calls for integrated assurance frameworks that combine financial and non-financial reporting under a coherent regulatory architecture, thereby enhancing credibility and mitigating the systemic risks associated with declining stakeholder trust.

4.2. Cross-Tabulation Analysis

To deepen the analysis, a series of cross-tabulations with Chi-square tests were conducted to explore whether demographic characteristics and prior perceptions of financial misrepresentation are associated with attitudes toward ESG-washing, trust in ESG disclosures, and investment behaviour. This approach is consistent with previous research highlighting that socio-demographic factors and past experiences can influence how individuals interpret corporate transparency and sustainability reporting credibility [1,2].
  • Gender not significant (χ2(3) = 2.16, p = 0.540).
  • Age group not significant for mandatory vs. voluntary trust (χ2(6) = 4.94, p = 0.551).
  • The professional sector is not significant for ESG-related investment preferences (χ2(4) = 2.54, p = 0.638).
  • Perceived frequency of misleading financial reporting significantly with ESG-washing impact (χ2(8) = 16.9, p = 0.040).
These results suggest that demographic factors did not significantly shape ESG-related attitudes, but prior perceptions of financial fraud play a decisive role. Full results are presented in Appendix B (Table A3, Table A4, Table A5 and Table A6).

4.3. Logistic Regression Analysis

The statistical analyses were conducted in R (version 4.x; R Foundation for Statistical Computing: Vienna, Austria) and RStudio IDE (Posit Software, PBC: Boston, MA, USA), using the packages readxl, dplyr, broom, pROC, ResourceSelection, and DescTools. After data cleaning and recoding of categorical responses, descriptive statistics and Chi-square tests were applied to explore associations between demographic variables, perceptions of ESG-washing, and investment preferences. Subsequently, a binary logistic regression model was estimated on 81 valid responses, reporting odds ratios with 95% confidence intervals (Table 1). Model diagnostics included the Hosmer–Lemeshow test for calibration, the Brier score for predictive accuracy, and the ROC AUC for discrimination. All tables and cross-tabulations were exported to Excel for transparency and replication.
The dependent variable was whether ESG-washing reduces investment trust. Independent variables included the influence of fraud, frequency of misleading reporting, trust in mandatory ESG disclosures, and investor participation.
Results show that higher perceived frequency of misleading reporting significantly increased the odds of reduced trust (OR ≈ 1.76, p ≈ 0.05). Respondents who trusted mandatory ESG disclosures were more than five times as likely to view ESG-washing as reducing trust (OR ≈ 5.14, p ≈ 0.012). Fraud influence and investor participation showed non-significant effects. Diagnostics (ROC AUC, Hosmer–Lemeshow, Brier score) supported the robustness of the model.

5. Discussion

The expanded empirical analysis, conducted through logistic regression, confirms that trust in ESG disclosures is systematically related to broader perceptions of corporate fraud. From a legitimacy perspective, ESG-washing undermines societal approval, while signaling theory suggests that misleading disclosures distort the cues investors rely on when allocating capital. Behavioral finance perspectives further explain the spillover of distrust across financial and non-financial domains, highlighting the fragility of investor confidence. In terms of regulatory frameworks, the findings resonate with the ongoing implementation of ISSB standards, ESRS, the EU Taxonomy, and stronger audit committee oversight, all of which aim to reinforce disclosure integrity. Additionally, the findings resonate with [43]. Fraud Triangle, which highlights the role of opportunity, pressure, and rationalisation in enabling misconduct, and with [44] Octagon of Fraud, which expands this model to incorporate organisational culture and regulatory oversight as critical factors shaping fraudulent practices.
The descriptive results indicated that a considerable proportion of respondents perceive ESG-washing as prevalent in corporate communication, with roughly two-thirds identifying it as either systematic or occasional. This aligns with prior research showing that stakeholders are increasingly aware of the strategic manipulation of sustainability narratives to project a more favorable image than warranted [6,45]. When such perceptions are widespread, the legitimacy of ESG disclosures is undermined, reducing their intended effect as instruments of stakeholder engagement and informed decision-making.
With respect to the credibility of reporting formats, most respondents expressed greater trust in mandatory ESG disclosures compared to voluntary ones. This is consistent with regulatory trust theory, which argues that legally mandated frameworks tend to be perceived as more reliable due to formal oversight and sanctions for non-compliance [46]. Interestingly, our cross-tabulation results revealed that this preference was relatively uniform across age groups, suggesting a convergence of attitudes irrespective of generational differences. This stands in contrast to earlier findings that documented generational divides in levels of institutional trust [47], possibly reflecting the growing public debate around sustainability reporting, which may have harmonised perceptions.
Professional affiliation similarly did not significantly influence ESG-related investment preferences. While minor differences were observed—such as greater caution among academics and a stronger inclination among private sector respondents to invest despite non-compliance—these effects were not statistically significant. This pattern suggests that individual values and perceptions of disclosure credibility have a greater influence on investment intentions than occupational background [48]. It also suggests that policy interventions to enhance ESG disclosure quality could have a broadly uniform impact across professional groups.
The most notable empirical relationship identified concerned prior perceptions of financial reporting misconduct. Respondents who believed that distorted financial data frequently mislead investors were significantly more likely to report that ESG-washing negatively affected their investment trust. This finding reinforces theoretical perspectives that link the credibility of non-financial disclosure to broader frameworks of corporate integrity [13,49,50]. It also suggests that scepticism toward ESG claims is amplified in contexts where financial misrepresentation is perceived as common, creating a spillover effect from financial to sustainability reporting.
These results carry important implications for both corporate governance and regulatory policy. First, they underscore that strengthening ESG disclosure credibility cannot be pursued in isolation but must be part of a comprehensive strategy addressing the integrity of both financial and non-financial reporting [51]. Second, the lack of significant demographic effects suggests that these measures are likely to be effective across a wide range of stakeholder groups, thereby increasing the efficiency of regulatory interventions. Third, the demonstrated link between perceived financial fraud and sensitivity to ESG-washing highlights that rebuilding investor trust requires tangible improvements in transparency and accountability across all disclosure channels, reinforced by independent verification and assurance mechanisms [52].

6. Conclusions

This study examined the interplay between perceptions of ESG-washing, trust in ESG disclosures, and investment behaviour, with particular attention to how demographic characteristics and prior experiences with financial misrepresentation shape these perceptions. The findings provide nuanced insights into the determinants of stakeholder trust in sustainability communication and its consequences for capital allocation decisions. The study’s results support H1 and H2 by confirming that perceptions of fraud and reliance on mandatory ESG disclosures significantly predict the perceived impact of ESG-washing on trust. H3 was supported as no significant demographic effects were observed.
The analysis revealed that demographic characteristics, including gender, age, and professional affiliation, did not significantly influence attitudes toward ESG-washing, trust in ESG disclosures, or preferences for ESG-based investments. This suggests that skepticism toward ESG-washing and a preference for mandatory disclosures may be widely shared across societal groups, potentially reflecting the pervasive public discourse and heightened awareness of corporate sustainability practices in recent years [46,47]. By contrast, prior perceptions of financial misrepresentation emerged as a significant predictor of how ESG-washing influences investment trust. Respondents who believed that investors are frequently misled by distorted financial reporting were substantially more likely to state that ESG-washing would reduce their willingness to invest. This finding supports the argument that trust in ESG disclosures is embedded in broader assessments of corporate integrity, with scepticism toward one domain of disclosure likely to spill over into others [53]. The results further demonstrate that the impact of ESG-washing on investment trust is not only descriptive but statistically validated through logistic regression.
The contribution of this study lies in highlighting the interconnectedness of financial and sustainability reporting credibility. By linking fraud perceptions to ESG disclosure trust, the study introduces a perspective that has been largely overlooked in prior research. Even if exploratory, this incremental contribution is valuable as it provides an empirical foundation for integrating financial and non-financial disclosure integrity within governance and assurance frameworks.
Limitations such as modest sample size, purposive sampling, and cross-sectional design are explicitly acknowledged, positioning results as exploratory but meaningful. Future research should employ larger and probability-based samples, longitudinal tracking, and comparative international studies to refine the understanding of ESG credibility and fraud perception dynamics. More advanced statistical approaches, such as moderation and mediation analysis or structural equation modelling (SEM), could also be applied with larger datasets to test the nuanced mechanisms through which perceptions of fraud condition the impact of ESG-washing on investor trust.
From a policy perspective, these results underscore that enhancing the credibility of ESG disclosures requires a holistic approach to corporate reporting integrity. Measures to strengthen sustainability reporting—such as alignment with international standards, third-party assurance, and clearer definitions of materiality—should be implemented alongside continued reforms to financial reporting oversight [28]. This integrated approach could mitigate the reputational risks associated with ESG-washing and improve investor confidence across both financial and non-financial dimensions.
For corporate managers and investor relations teams, the findings highlight the strategic importance of authentic ESG engagement. In an environment where stakeholders increasingly question the veracity of corporate claims, organisations must demonstrate consistency between their disclosed sustainability commitments and observable operational practices. Failure to do so risks not only reputational damage but also diminished access to capital from increasingly discerning investors [28].

Author Contributions

Conceptualization, A.G.; methodology, I.P. and A.G.; software, I.P. and A.G.; validation, I.P. and A.G.; formal analysis, I.P.; investigation, I.P.; resources, I.P.; data curation, I.P.; writing—original draft preparation, I.P. and A.G.; writing—review and editing, I.P.; visualization, I.P. and A.G.; supervision, A.G.; project administration, I.P.; funding acquisition, I.P. and A.G. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Institutional Review Board Statement

The study was conducted in accordance with the provisions of Greek Law 4957/2022 (Chapter L, Articles 277–282) and the internal policy of the Research Ethics Committee (EIDE) of the Hellenic Mediterranean University. According to this framework, research projects require prior ethics approval only when they involve funding, human participants or biological material (including personal data), animals, or potential environmental impact. The present study is non-interventional, fully anonymous, involves no personally identifiable or sensitive data, and is not funded. Therefore, in accordance with Law 4957/2022 and the HMU Research Ethics Committee’s policy, the study was exempt from the requirement of prior IRB/EIDE approval. An official exemption statement has been issued by the HMU Research Ethics Committee confirming this status.

Informed Consent Statement

Participation in the study was entirely voluntary and anonymous. Respondents were told in advance about the purpose of the research, the anonymous nature of the data collection, and the absence of any personal or sensitive information being recorded. Submission of the completed questionnaire was taken as an indication of informed consent.

Data Availability Statement

Restrictions apply to the datasets.

Conflicts of Interest

The authors declare no conflicts of interest.

Abbreviations

The following abbreviations are used in this manuscript:
ESGEnvironmental, Social, Governance
CSRDCorporate Sustainability Reporting Directive
CSRCorporate Social Responsibility

Appendix A

Respondent Demographics

This appendix summarises the demographic composition of the respondents and presents descriptive statistics for the principal survey variables. A total of 133 valid responses were collected from professionals engaged in auditing, corporate finance, public administration, academia, and sustainability consulting. Percentages are calculated relative to the total number of respondents.
Table A1 presents the distribution of respondents by gender, age group, and professional sector.
Table A1. Demographic characteristics of the sample (n = 133).
Table A1. Demographic characteristics of the sample (n = 133).
VariableCategoryn%
GenderMale11485.7%
Female1914.3%
Age group18–30 years96.8%
31–45 years4433.1%
46–60 years4231.6%
61+ years3828.6%
Professional sectorPrivate sector4634.6%
Public sector4433.1%
Academic community4332.3%
Table A2 summarises the main substantive variables analysed in the study, corresponding to selected items from the questionnaire.
Table A2. Descriptive statistics for the main study variables.
Table A2. Descriptive statistics for the main study variables.
VariableCategoryn%
Q7—Frequency of misleading financial reportingRarely4533.8%
Frequently3123.3%
Very frequently3022.6%
Almost never2619.5%
Q9—Perceived prevalence of ESG-washingYes, systematically4231.6%
Yes, but not always intentional4030.1%
No, ESG data is reliable3425.6%
No opinion1712.8%
Q14—Trust in mandatory vs. voluntary ESG disclosuresYes, absolutely8463.2%
No, often voluntary are more detailed2821.1%
No opinion2115.8%
Q12—ESG compliance and investment preferencesESG does not affect my decision4936.8%
Would invest, but with reservations4533.8%
Prefer not to invest3929.3%
Q13—Impact of ESG-washing on trustNegatively7354.9%
No opinion3123.3%
Does not particularly affect2921.8%

Appendix B

Cross-Tabulation Outputs

Table A3. Gender × Perceived ESG-washing (Q9).
Table A3. Gender × Perceived ESG-washing (Q9).
GenderESG-Washing Does Not Occur (Reliable Data)Don’t Know/No OpinionYes, but Not Always IntentionalYes, Systematically
Male30 (26.3%)13 (11.4%)36 (31.6%)35 (30.7%)
Female4 (21.1%)4 (21.1%)4 (21.1%)7 (36.8%)
χ2(3) = 2.16, p = 0.540. Note: No statistically significant association was observed; male and female respondents showed similar perceptions of ESG-washing.
Table A4. Age group × Trust in mandatory vs. voluntary ESG disclosures (Q14).
Table A4. Age group × Trust in mandatory vs. voluntary ESG disclosures (Q14).
Age GroupNo, Voluntary Are Often More DetailedNo OpinionYes, Absolutely
18–301 (11.1%)1 (11.1%)7 (77.8%)
31–457 (15.9%)6 (13.6%)31 (70.5%)
46–608 (19.0%)8 (19.0%)26 (61.9%)
61+12 (31.6%)6 (15.8%)20 (52.6%)
χ2(6) = 4.94, p = 0.551. Note: No statistically significant differences between age groups; trust levels in mandatory disclosures appear consistent across cohorts.
Table A5. Professional sector × ESG-based investment preferences (Q12).
Table A5. Professional sector × ESG-based investment preferences (Q12).
SectorWould Invest but with CautionWould Prefer Not to InvestESG Does Not Affect My Decision
Academic community14 (32.6%)14 (32.6%)15 (34.9%)
Public sector13 (29.5%)11 (25.0%)20 (45.5%)
Private sector18 (39.1%)14 (30.4%)14 (30.4%)
χ2(4) = 2.54, p = 0.638. Note: No significant association between professional sector and ESG-based investment preferences.
Table A6. Fraud frequency (Q7) × ESG-washing impact on investment trust (Q13).
Table A6. Fraud frequency (Q7) × ESG-washing impact on investment trust (Q13).
Perceived Fraud FrequencyStrong Negative ImpactModerate ImpactNo Significant Impact
Very frequently0 (0.0%)1 (100.0%)0 (0.0%)
Frequently16 (53.3%)9 (30.0%)5 (16.7%)
Occasionally21 (46.7%)11 (24.4%)13 (28.9%)
Often25 (80.6%)2 (6.5%)4 (12.9%)
Almost never11 (42.3%)8 (30.8%)7 (26.9%)
χ2(8) = 16.19, p = 0.040. Note: Statistically significant association; respondents perceiving frequent or very frequent financial misrepresentation reported stronger negative impacts of ESG-washing on investment trust.

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Figure 1. Frequency of misleading financial reporting.
Figure 1. Frequency of misleading financial reporting.
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Figure 2. Perceived prevalence of ESG-washing.
Figure 2. Perceived prevalence of ESG-washing.
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Figure 3. Trust in mandatory vs. voluntary ESG disclosures.
Figure 3. Trust in mandatory vs. voluntary ESG disclosures.
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Figure 4. ESG compliance and investment preferences.
Figure 4. ESG compliance and investment preferences.
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Figure 5. Impact of ESG-washing on trust.
Figure 5. Impact of ESG-washing on trust.
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Table 1. Presents the odds ratios (OR), 95% confidence intervals, and p-values.
Table 1. Presents the odds ratios (OR), 95% confidence intervals, and p-values.
VariableOR95% CIp-Value
Fraud_influences_decisions0.51[0.21, 1.23]0.133
Misleading_freq1.76[1.00, 3.10]0.050
Mandatory_ESG_more_reliable5.14[1.43, 18.53]0.012
Investor_participation6.75[0.33, 137.28]0.214
Logistic regression model: logit(p) = ln(p/(1 − p)). Odds Ratios (OR) are calculated as exp(β). Confidence intervals (95% CI) are exp(β ± 1.96 × SE).
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Passas, I.; Garefalakis, A. The Impact of Fraud Perception and ESG-Washing on Investment Trust: Integrating Corporate Governance Theory and Empirical Evidence. Account. Audit. 2025, 1, 9. https://doi.org/10.3390/accountaudit1030009

AMA Style

Passas I, Garefalakis A. The Impact of Fraud Perception and ESG-Washing on Investment Trust: Integrating Corporate Governance Theory and Empirical Evidence. Accounting and Auditing. 2025; 1(3):9. https://doi.org/10.3390/accountaudit1030009

Chicago/Turabian Style

Passas, Ioannis, and Alexandros Garefalakis. 2025. "The Impact of Fraud Perception and ESG-Washing on Investment Trust: Integrating Corporate Governance Theory and Empirical Evidence" Accounting and Auditing 1, no. 3: 9. https://doi.org/10.3390/accountaudit1030009

APA Style

Passas, I., & Garefalakis, A. (2025). The Impact of Fraud Perception and ESG-Washing on Investment Trust: Integrating Corporate Governance Theory and Empirical Evidence. Accounting and Auditing, 1(3), 9. https://doi.org/10.3390/accountaudit1030009

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