Corporate green transformation is essential for achieving the goals of carbon peak and carbon neutrality, and their strategic greenwashing behavior can increase transition risks and hinder green economic development. As important internal stakeholders of enterprises, institutional investors have developed a certain level of green attention regarding corporate environmental performance, but there is disagreement over whether they can drive substantive green transformation in businesses. Thus, this paper attempts to examine the impact of institutional investors’ green attention on corporate greenwashing behavior from the perspective of environmental governance in the capital market, exploring the underlying reasons and potential solutions.

This paper constructs an institutional investor green attention index using textual data from investor field surveys. It analyzes the impact and mechanisms of institutional investors’ green attention on corporate greenwashing behavior using samples of listed companies from 2012 to 2022. It is found that green attention exacerbates strategic greenwashing behavior, and environmental action-focused green attention has a stronger promoting effect on greenwashing behavior. The degree and frequency of green attention exhibit a heterogeneous effect on greenwashing behavior. For firms that receive less participation from surveying institutions, lack continuous attention, have fewer institutional site visits, and receive more green attention from buy-side institutions, as well as when the CEO holds a lower stake, external competition is higher, and the stock market value is lower, green attention tends to exacerbate greenwashing behavior in these firms. Further analysis reveals that myopia behavior by institutional investors and perfunctory behavior by corporate management are the underlying causes of this phenomenon.

This paper explores new paths for external driver governance by unraveling the intrinsic causes of greenwashing and extends the boundaries of investor governance effect research from the perspective of modern environmental governance micro-mechanisms, which not only enriches the research on corporate greenwashing behavior and decision-making, but also represents a new exploration in leveraging the synergistic effect of environmental governance systems. The conclusions are significant for guiding the formation of widespread green attention, clarifying the mechanisms behind greenwashing, and leveraging the effect of environmental governance.