Policy-making in Green Accounting, a Solution to Deal with Green Washing

Introduction
In the contemporary era, the intensifying urgency of climate change and ecological degradation has transformed environmental stewardship from a corporate elective into a strategic necessity. In this context, accounting—specifically Green Accounting—has emerged as a vital mechanism for enhancing the decision-making processes of managers, investors, and regulatory bodies by providing standardized environmental reporting (Kazemi Nojedeh et al., 2023). However, the pervasive issue of information asymmetry between corporate insiders and external stakeholders creates a fertile ground for opportunistic behavior. Managers may prioritize impression management over factual transparency, leading to the phenomenon of “Greenwashing”—the deceptive practice of presenting a misleadingly eco-friendly image to secure the trust of shareholders and consumers (Marcatajo, 2023). Greenwashing does not merely represent a breach of corporate ethics; it introduces systemic bias into financial markets, leading to capital misallocation and the erosion of public trust in financial reporting frameworks. Consequently, there is an imperative need to develop robust regulatory and accounting architectures that ensure the reliability and verifiability of green disclosures. This study explores the nexus between green accounting standards and the mitigation of greenwashing, evaluating global policy trends and their applicability to the Iranian corporate landscape.
 
Methodology
This research utilizes an applied-analytical design, employing a comprehensive literature review and comparative analysis of international and national scientific repositories. The methodology involves a systematic examination of green accounting policies across diverse jurisdictions to identify common drivers of success and systemic causes of failure. By synthesizing global best practices—ranging from European Union directives to emerging sustainability standards—the study critically analyzes the existing challenges within the Iranian regulatory framework. This analytical approach facilitates the development of strategic solutions aimed at enhancing transparency and curbing deceptive environmental reporting in both the public and private sectors.
 
Findings
The global shift toward “green consumerism” has incentivized firms to expand environmental protection initiatives, such as green product development and green human resource management (Rajaei et al., 2023). While environmentally conscious consumers are increasingly willing to pay a premium for sustainable products, this market trend has paradoxically incentivized an “environmental facade.” Some corporations utilize marketing strategies to mask ecological damage, thereby managing their reputation among regulatory bodies and the public while continuing harmful practices (Braga, 2019).
In contrast, Green Accounting serves as a counter-mechanism by identifying, measuring, and disclosing environmental costs and liabilities essential for informed management (Khan & Gupta, 2024). However, the empirical evidence suggests that the voluntary nature of sustainability reporting and the absence of harmonized global regulations have historically led to inconsistent and unreliable disclosures (Karamiverdi et al., 2023).
Significant progress has been made since 2015, with international agreements fostering increased transparency and the European Union introducing specific anti-greenwashing regulations to empower consumers (Marcatajo, 2022). Furthermore, many jurisdictions have implemented ranking systems and reward programs that link environmental performance to financial incentives and tax benefits (Khan & Gupta, 2024).
In the Iranian context, regulatory efforts are gaining momentum. Article 190 of the Fifth Development Plan and the 2021 Value-Added Tax Law have established a foundation for green management and pollution levies. More recently, the 2024 sustainability disclosure standards represent a pivotal shift toward integrating green metrics into financial reporting requirements. Nevertheless, a review of the Tehran Stock Exchange reveals a significant transparency gap: while large-scale issuers are increasingly adopting sustainability reports, small and medium-sized enterprises (SMEs) lag behind in providing sufficient green accounting data. This underscores the necessity for a universal application of environmental accounting standards across all sectors—production and services alike (Rounaghi, 2019)—and highlights the urgent role of the Iranian Audit Organization in formalizing supplementary green accounting standards to mitigate greenwashing.
 
Discussion and Conclusion
Greenwashing significantly undermines the integrity of both financial and non-financial reporting, threatening to delegitimize the accounting profession by eroding the reliability of corporate disclosures. This research highlights that accounting policies must evolve from mere technical tools into robust instruments of governance and accountability, necessitating the establishment of mandatory green accounting standards to ensure verifiable reporting. To combat superficial environmental claims, regulatory mechanisms should be strengthened through reformed pollution levies and fiscal incentives—such as those within Iranian tax laws—to align corporate profit motives with ecological preservation. Moving forward, the transition to a sustainable economy requires a multi-faceted approach: continuous capacity building to enhance the green reporting literacy of accountants and managers, the integration of annual budgetary incentives for green producers, and the adoption of emerging technologies like Blockchain and Artificial Intelligence to create transparent, immutable audit trails. While this study provides a foundational theoretical framework, future empirical research is essential to quantify the direct impact of specific accounting policies on greenwashing across diverse industrial sectors, ultimately ensuring that accounting systems reflect the true ecological costs of business within a transparent global market.