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In this paper, we examine abatement investment and pricing in a supply chain where consumers value environmental performance. The product’s green reputation depends on its pollution rate relative to a declining industry standard. The manufacturer manages abatement investment, with optional cost-sharing by the retailer. Cost-sharing achieves a Pareto-optimal outcome but may increase total emissions by boosting demand. Faster declines in the industry standard reduce abatement investment. Firms with lower initial green reputation - “brown firms” - struggle to catch up, while firms with higher initial states benefit from a cycle of increased investment, enhanced abatement capacity, reduced emissions, and greater goodwill gains.

(With Elena Parilina and Georges Zaccour.)