Does Private Equity Ownership Make Firms Cleaner? The Role Of Environmental Liability Risks
82 Pages Posted: 12 Jun 2020 Last revised: 24 Nov 2021
Date Written: May 18, 2020
This paper studies how Private Equity (PE) firms affect firms' environmental outcomes in the oil and gas industry. On average PE ownership leads to a 70% reduction in the use of toxic chemicals and a 50% reduction in satellite-based measures of CO2 emissions. However, this average effect hides significant heterogeneities. PE-backed firms increase pollution in locations and periods where environmental liability risk is low, as shown by a novel natural experiment that reduced these risks for projects located on federal and Native American territories. Overall, high-powered incentives to maximize shareholder value may benefit environmental outcomes when the risk of environmental regulation is high.
Keywords: Private equity, environmental externalities, Sustainable finance, satellite data
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