Pollution Monitoring and the Pricing of Environmental Risk in Firms -- by Namrata Kala, Jalal Sani, Nemit Shroff, Pengdong Zhang

Pricing firms’ environmental risk is central to ensuring that capital is efficiently allocated. We examine whether an increase in the salience of pollution information affects the beliefs and perceived valuations of financially sophisticated agents—financial analysts—regarding the environmental risks faced by the firms they cover. Exploiting the staggered rollout of China's ambient air quality monitoring program, we show that when monitoring is introduced in a city, analysts based there become substantially more likely to discuss air pollution. These changes in attention are reflected in stock prices: reports issued by treated analysts generate more negative market reactions for brown firms and more positive reactions for green firms, with little change for environmentally neutral firms. These price responses do not subsequently reverse. Treated analysts increase their information acquisition through corporate site visits and issue less favorable assessments of brown firms and more favorable assessments of green firms. Our findings show that ambient environmental monitoring can affect asset prices by making environmental risks more salient and inducing greater information production about their implications for firm value. Acknowledgements and Disclosures We received helpful comments from Jed Neilson, Paul Richardson (discussant), Naomi Soderstrom (discussant), Alison Taylor (discussant), Scott Wang (discussant), and workshop participants at Boston College, Dishui Lake Advanced Finance Institute, MIT, NYU Shanghai, Penn State University, University of Michigan, University of North Carolina at Chapel Hill, and University of Saskatchewan, as well as conference participants at the 7th Analyst Research Conference, the 2026 Climate Finance & Sustainability Conference, the 2026 Emerging Scholar Sustainability Research Camp, and the 2026 Lisbon Accounting Conference. We thank Yalin Luo and Yidan Mao for stellar research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. We received helpful comments from Jed Neilson, Paul Richardson (discussant), Naomi Soderstrom (discussant), Alison Taylor (discussant), Scott Wang (discussant), and workshop participants at Boston College, Dishui Lake Advanced Finance Institute, MIT, NYU Shanghai, Penn State University, University of Michigan, University of North Carolina at Chapel Hill, and University of Saskatchewan, as well as conference participants at the 7th Analyst Research Conference, the 2026 Climate Finance & Sustainability Conference, the 2026 Emerging Scholar Sustainability Research Camp, and the 2026 Lisbon Accounting Conference. We thank Yalin Luo and Yidan Mao for stellar research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Citation and Citation Data Copy Citation Namrata Kala, Jalal Sani, Nemit Shroff, and Pengdong Zhang, "Pollution Monitoring and the Pricing of Environmental Risk in Firms," NBER Working Paper 35969 (2026), https://doi.org/10.3386/w35969. Copy to Clipboard Download Citation MARC RIS BibTeΧ Download Citation Data In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals—the NBER Reporter, the NBER Digest, the Bulletin on Health, the Bulletin on the Economics of Alzheimer's, and the Bulletin on Entrepreneurship—as well as research spotlights, lectures, and panel videos. Presenters: Melissa Dell & Ashesh Rambachan Presenter: Paul Goldsmith-Pinkham