Abstract: We study firms' private incentives to provide credible environmental disclosure through clean patent filings. We use plausibly exogenous within-firm variation in environmental regulatory risk exposure via EPA actions to investigate firms' private benefits from signaling information about their environmental capabilities. Firms file more clean patents when subject to EPA actions and make their patent applications publicly available earlier. We show that firms' credible signaling is targeted towards regulators and investors. Moreover, we find evidence of positive social benefits from such clean disclosure through technology spillovers that result in emission reductions beyond the firm. The social returns of disclosing clean technology surpass the private costs for firms, indicating a systemic under-disclosure of clean technology that may fall short of the socially optimal level.
Aymeric Bellon, University of North Carolina-Chapel Hill
Yasser Boualam, University of Pennsylvania
Abstract: Polluting practices can reduce costs in the short term at the expense of exposing firms to significant environmental liability risk. Using novel granular pollution measures from the oil and gas industry, we show that firms increase their pollution intensity as they become more financially distressed, akin to a risk-taking motive. We then calibrate a rich dynamic model featuring endogenous default, clean and dirty capital, and financing frictions. Our counterfactuals point to the limited impact of blanket divestment campaigns, as firms may scale down and pollution-shift their assets simultaneously. Tilting strategies, however, are more effective at taming pollution.
Abstract: Exploiting the unique “twin” structure of German government green and conventional securities, we use a dynamic term structure model to estimate a frictionless sovereign risk-free greenium, distinct from the yield spread between the green security and its conventional twin (the green spread). The model purifies the green spread from confounding and idiosyncratic factors unrelated to environmental concerns. While the model-implied greenium exhibits a significant relation with proxies of shocks to climate concerns—and the green spread does not—the green spread correlates with stock market prices and measures of flight-to-quality. We also estimate the greenium term structure and expected green returns.
Discussant: Alexander David, University of Calgary
