Sustainability or Greenwashing: Evidence from the Asset Market for Industrial Pollution

Abstract:
This paper studies the asset market for pollutive plants. Firms are more likely to divest pollutive plants following environmental risk incidents. Following these divestitures, total and scaled pollution levels at the sold plants do not decline. The sellers earn higher environmental, social, and governance (ESG) ratings and face lower regulatory compliance costs after divesting. The buyers tend to be private, non-ESG-rated, without prior environmental risk incidents, and with supply chain relationships or joint ventures with the sellers. Overall, the evidence suggests that 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.