Sustainability or Greenwashing: Evidence from the Asset Market for Industrial Pollution
72 Pages Posted: 18 May 2022 Last revised: 13 Apr 2023
Date Written: April 28, 2022
We study the asset market for pollutive plants. Firms divest pollutive plants following environmental risk incidents. However, pollution levels do not decline after divesting. The buyers are firms facing weaker environmental pressures, with supply chain relationships or joint ventures with the sellers. 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 levels and with substantial gains from trade.
Keywords: Divestiture, ESG, pollution, greenwashing
JEL Classification: G32, G34, H57, K42, Q50
Suggested Citation: Suggested Citation