Do you know the difference between “carbon neutral” and “net zero”? If not, you have plenty of company. In a new paper, we show that few people can distinguish between these and similar terms and find that, while providing more information about climate pledges can influence consumer choices, it does not help them make better decisions — a dynamic that borders on manipulation.

To date, more than 3,000 firms have certified their net-zero targets with the Science Based Targets initiative (SBTi), while hundreds more have pledged to become carbon neutral. These actions are meant to help consumers identify sustainable options. To see whether they actually do so, we developed three hypotheses. First, we posited that people were not aware of the differences between the respective climate pledges. Second, we assumed that people would still be willing to pay a substantial premium for products from firms making such claims, even if they did not fully understand them. If these first two hypotheses proved correct, the conditions would be perfect for greenwashing, as firms could profit by making pledges that sounded ambitious but did not correspond to real emission reductions.

Table 1: The main differences between net zero and carbon neutrality as defined by SBTi. Firms have very different costs to become carbon neutral/net zero.

Third, we hypothesized that providing more information about the specifics of climate pledges would help people make more informed choices.

To test our hypotheses, we conducted three surveys involving a total of 2,300 U.S. residents.

Do people know the difference between net zero and carbon neutrality?

First, we asked a representative sample of 300 U.S. residents to list the differences between climate pledges without providing them with any information.  No one could identify any differences, confirming our first hypothesis.

Are people willing to pay for claims they don’t understand?

Second, using a representative sample of 1,500 U.S. residents, we studied whether people are willing to pay a premium for gift cards from companies with either a net-zero target or a carbon neutral target. We found that people are willing to pay 25 percent more for gift cards from those companies than for gift cards from firms with no climate targets, despite not understanding the meaning of such pledges. The results suggest that, absent regulatory intervention, firms might profit from greenwashing.

Can disclosure help people understand the meaning of climate pledges?

In this second study, we also provided participants with information on the essential features of climate pledges in various forms and found that it made little difference. In our third study, involving 500 U.S. residents, we used eye-tracking technology to test whether providing consumers with information about a company’s climate pledges along with a variety of other information about the company’s product – a more realistic situation for consumers – affected their understanding of the pledges. The results were sobering: Even though consumers spent significant time looking at information about climate pledges (especially when presented in visually salient formats like traffic lights, see Figure 2), their understanding did not improve. As in our first study, where respondents received no information on climate pledges, we found that none of the participants correctly identified the two core features of carbon neutrality.

Figure 1: The traffic lights used to inform respondents regarding the characteristics of carbon neutral and net zero in one of the treatments.

In fact, in some cases, the information confused consumers – those who saw the most eye-catching disclosures were more likely to believe the opposite of what the disclosure stated. This suggests that even when the information is presented clearly, it may prove misleading given the sheer amount of information to which consumers are routinely exposed.

Our overall hypothesis is that participants were drawn to buzzwords, such as “emission reductions,” but did not fully read the details about them. As a result, seeing the term “emission reductions” in connection with carbon neutrality led them to form a positive association, even though emission reductions are irrelevant to carbon neutrality).

Contrary to our initial hypotheses, we find that providing information is not a solution to greenwashing in the context of climate pledges. It neither enables recipients to make more informed choices nor improves their understanding. Furthermore, it increases confusion and induces recipients to spend time reading information they do not process correctly.

Our findings should prompt policymakers to reconsider whether using disclosure mandates to combat greenwashing works in practice. While transparency is important, our evidence suggests that disclosure alone will not prevent firms from profiting in consumer markets through climate pledges that sound more ambitious than they actually are.

This post comes to us from Vittoria Battocletti at Bocconi University’s Department of Law, Alfredo Desiato at Aston University, Alessandro Romano at Bocconi University, Chiara Sotis at the London School of Economics & Political Science, and Tobias H. Troeger at the Leibniz Institute for Financial Research SAFE. It is based on their recent article, “Climate Pledges and Greenwashing: Information Provision Does Not Work,” available here.