Sustainability or Greenwashing: Evidence from the Asset Market for Industrial Pollution
Journal of Finance forthcoming
80 Pages Posted: 18 May 2022 Last revised: 5 May 2024
Date Written: April 28, 2022
Abstract
We study the asset market for pollutive plants. Firms divest pollutive plants in response to environmental pressures. The buyers are firms facing weaker environmental pressures, with supply chain relationships or joint ventures with the sellers. While pollution levels do not decline following divestitures, the sellers highlight their sustainable policies in subsequent conference calls, earn higher returns as they sell more pollutive plants, and benefit from higher ESG ratings and lower compliance costs. Overall, the asset market allows firms to redraw their boundaries in a manner perceived as environmentally friendly without real consequences for pollution and with substantial gains from trade.
Keywords: Divestiture, ESG, pollution, greenwashing
JEL Classification: G32, G34, H57, K42, Q50
Suggested Citation: Suggested Citation