Based on negative correlations between CO2 emissions and green bond issuance, existing literature concludes that greenwashing is inconsistent with green bond issuance. We re-examine the data and argue that greenwashing motive actually exists in the ESG bond markets, as some ESG bond issuers record fewer-than-expected environmental expenditure following their issuance of ESG bonds. The negligence of traditional institutional investors on environmental expenditure might encourage greenwashing behavior. Yet, we also find that some sophisticated investors penalize greenwashing by reducing capital invested to ESG bond issuers with fewer-than-expected environmental expenditure, irrespective of whether their environmental footprint has improved or not.