Gies Business study examines where pollution goes when companies divest

In an age where corporate sustainability is scrutinized, celebrated, and monetized, companies are eager to prove their environmental credibility. Some firms, especially those under public scrutiny, attempt to tidy up their impact by divesting "dirty assets" like plants that produce pollution. Divestment is often marketed as proof of progress, a way for firms to get greener while keeping investors and the public on their side. But what if that celebrated practice isn't actually addressing environmental harms? Where does industrial pollution go when companies divest?

Qiping Xu, assistant professor of finance at Gies College of Business, suspected there was more to the story. She followed the pollution and traced the afterlife of dirty assets to ask whether divestment cleans the planet or just the balance sheet. In the Journal of Finance article "Sustainability or Greenwashing: Evidence from the Market for Industrial Pollution," she offers hard data on a deceptively simple question: does selling polluting assets reduce their environmental impact?

“Many firms in the market are under a lot of pressure to be green, because we all want our planet to stay beautiful and sustainable," said Xu. "There are many market initiatives that generate pressure and push firms toward cleaner behavior. But where are those polluting assets actually going to go?”

Tracking Pollution with EPA Data

To answer that question, Xu and her coauthors Ran Duchin (Boston College) and Janet Gao (Georgetown University) built a dataset that merges Environmental Protection Agency pollution records with corporate divestments. Using the EPA’s Toxic Release Inventory Program, which tracks the emissions produced by a plant over time, they examined what happened after firms sold polluting assets like refineries, chemical plants, and steel operations. The team compiled a dataset of 888 industrial plant divestitures from 2000 to 2020, linking deal records from the Securities Data Company with the EPA’s Toxic Release Inventory to trace both ownership changes and emissions over time.

What they found challenged conventional wisdom about corporate sustainability: divestment doesn’t reduce pollution; it just moves it around. Instead of closing, those plants are typically sold to other firms, which keep producing emissions even as ESG ratings treat the seller as if the problem has gone away. This is what Xu and her coauthors describe as a form of “greenwashing”: the appearance of environmental progress without meaningful change.

“What’s changing in legal ownership doesn’t represent an actual supply chain production change,” said Xu. “We call it a ‘cosmetic’ redrawing of the firm’s boundary. It doesn’t change the total amount of pollution being produced. Unfortunately, most environmental, social, and governance rating schemes focus more on what falls within the legal boundary, while paying far less attention to the broader supply chain and production footprint.”

From the perspective of ESG ratings, a firm that divests looks greener the moment it sells off a polluting plant. But the planet doesn’t get any cleaner just because the asset has a new owner. This exposes a weakness in ESG reporting itself: sustainability metrics tied to ownership, not outcomes.

Who Wants Dirty Assets?  

If divestment just moves a problem around, then the question becomes: who’s taking the deal? According to Xu’s analysis, buyers aren’t necessarily better operators or savvy investors - they’re just under less pressure to be green.

“These buyers aren’t necessarily better at running these plants to make them more productive, or greener,” said Xu. What makes them 'better' is that they’re under less scrutiny and pressure. Buyers are likely privately owned, often not ESG rated.  They tend to locate in counties where people are less critical of pollution.”

That dynamic creates a market split. Visible, publicly traded firms are pressured into greener moves, while less-visible buyers take over the dirty assets, facing fewer disclosure requirements and looser oversight. The assets themselves, and the emissions they produce, continue largely unchanged.

The Illusion of Letting Go

Divestment may separate a firm facing scrutiny from a scrutinized asset, but that doesn’t always mean the two have cut ties. In many cases, companies continue to benefit from plants they no longer own.

“Cutting off a plant will create some disruption in a firm’s production,” said Xu. “So what do you do? You find a friend you already have an existing business relationship with – someone you can negotiate a good deal with on the side to buy output. While firms don’t own the plants, that doesn’t mean they lose access to those plants completely. There are many ways they can still source that output.”

That continuity behind the scenes is one of the most striking findings in Xu’s research.  Even when firms remove polluting assets from their books, they don’t always lose access. Relationships often ensure they keep their supply chains – and the pollution – intact. On paper, they’ve stepped away. In practice, the supply chain remains intact, and the pollution flows like it did before.

Visibility and the Shell Game

Conventional wisdom would dictate that public pressure on a firm to go green is a good thing. Not all firms respond in the same way, however, and pressure creates paradox. By concentrating public and regulatory pressure on high-visibility firms, we may be unintentionally pushing pollution into spaces that fewer are watching.

For Xu, this is a potential mistake. 

“When you put a lot of pressure in one part of the market, guess where the air flows? To the other part of the market. What we are creating is a market with two separate segments: a green sector that appears to be getting greener, and a sector that keeps getting dirtier. On average, we’re not saving our planet.”

A sobering takeaway from Xu’s research is that no single actor is misbehaving. Firms comply with disclosure requirements. ESG agencies apply ratings consistently. Regulators enforce existing policy. And the system produces a gap large enough to hide hundreds of thousands of tons of pollution.

“These divestments, they are perfectly legal,” said Xu. “There’s nothing wrong with that. Industry rating agencies are doing what they can. But somehow, a loophole is created through that process. We still end up with this almost invisible hand that pushes polluting assets to where people don’t see them. Just sweep them under the mattress, no one sees them, and we claim victory.”

It’s Not Easy Going Green

Xu’s research enters the middle of a larger debate about corporate responsibility and sustainability. At a time when stakeholders are demanding better performance on environmental targets, this study argues that divestment can be more “greenwashing” than transformation.

For companies, divestment solves a perception problem. For the planet, very little changes. Assets keep producing, emissions keep flowing, and the pollution slips out of sight. Xu’s claims are evidence of the fact that our current sustainability metrics are built on incomplete pictures of impact. If what we measure stops at ownership, we risk mistaking cosmetic transformations for meaningful change.

“This requires a much deeper, more profound change in the system of pollution regulation,” Xu said. “It requires different policies, changes in data infrastructure. It’s extremely difficult. But just because it’s challenging doesn’t mean we shouldn’t do it. If we really want to have a clear understanding of pollution, that’s a necessary step.”

Until that happens, we risk celebrating progress that doesn’t really exist.