Dirty Air and Clean Investments: The Impact of Pollution Information on ESG Investment

Ray Fisman
Slater Family Chair in Behavioral Economics
Boston University

This talk is based on a co-authored paper that studies the link between exposure to pollution information and investment portfolio allocations, exploiting the rollout of air quality monitoring stations during 2006-2019 in India. Using a triple-difference framework, the authors show that retail investors’ investments in “brown” stocks become more negatively related to local air pollution after a monitoring station appears nearby. Since green stocks do not outperform brown stocks over this period, they suggest that their findings are likely driven by investor tastes and pollution salience rather than a shift in expected returns. The effect of pollution information on investment choices is most prominent amongst tech-savvy investors who are most plausibly “treated” by real-time pollution data and by younger investors who tend to be more sensitive to environmental concerns. Overall, the results provide micro-level support for the view that salience of environmental conditions affect investors’ tastes for green versus brown investments.