Abstract:

The proliferation of greenwashing in the fashion industry presents a challenge for the sustainable transformation of the fashion industry. At present， few studies have focused on the governance mechanism of greenwashing in the fashion supply chain in the context of manufacturing outsourcing. In general， suppliers are prone to violating environmental regulations related to greenwashing. To manage supplier social responsibility， some fashion retailers have adopted a self-assessment strategy whereby they ask suppliers to self-report green level of apparel. Self-reported information is difficult to verify and this leads to an important credibility question： can a fashion retailer expect truthful reporting？ Whether a supplier’s green level can be credibly communicated through free and unverifiable self-reporting is examined.

A cheap talk model consisting of a supplier manufacturing a green fashion apparel with uncertain audit and demand， and a fashion retailer who must determine the allocation of limited inventory capacity between a preexisting unsustainable clothing and the supplier’s green apparel that may or may not pass the audit is developed. The supplier is endowed with a given green level （privately known to him） representing the probability of no violation， which he shares （either truthfully or not） with the fashion retailer. The interaction between the supplier and the fashion retailer in two stylized operational systems is analyzed： （i） traditional system， in which the fashion retailer must decide the order quantity of unsustainable clothing before knowing whether green apparel will pass the audit； and （ii） flexible system， where the fashion retailer has the option to postpone （at a cost） her capacity allocation decision until the uncertainty about the result of the audit of the green apparel is resolved.

It is found that： in the traditional system， the green supplier always prefers to send an excessively optimistic report， to induce the fashion retailer to set aside a larger portion of her capacity for the green product. Anticipating this behavior， the fashion retailer cannot find the report credible. Thus， truthful information sharing is blocked because of the conflicting incentives of the two players. In the flexible system， on the contrary， truthful information exchange may emerge in equilibrium， where the supplier transmits his true green level and the fashion retailer treats the transmission as truthful. The genesis of this effect is preference reversal， where the green supplier may prefer to send different reports under different realizations of the fashion retailer’s inventory capacity. This mixture of preferred reports， coupled with the supplier’s uncertainty about the fashion retailer’s inventory capacity can result in a situation where the supplier is not sure which way to distort the report to best motivate the fashion retailer to wait for the green product. Thus， it is shown that the greenwashing within the fashion supply can be avoided from a relatively rich setup featuring two-sided information asymmetry interacting with postponement flexibility.

Key words: greenwashing, purchasing postponement, cheap talk, green supply chain, fashion apparel