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Something in the air: does air pollution affect fund managers’ carbon divestment?

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Listed:
  • Thanh D. Huynh

    (Monash University)

  • Frank Weikai Li

    (Singapore Management University)

  • Ying Xia

    (Monash University)

Abstract

We examine whether mutual fund managers overestimate carbon risk when they are exposed to local air pollution. We find that air pollution near fund managers induces them to underweight stocks of high-emission firms. The effects strengthen among environmentally conscious fund managers and among those likely to be surprised by air pollution—consistent with the idea that managers revise their beliefs about carbon risk following exposure to air pollution. A firm’s carbon-emissions disclosures and fund managers’ sophistication moderate these effects. Carbon-intensive stocks sold by fund managers who are exposed to local air pollution subsequently outperform stocks they buy, suggesting that such underweighting is costly to fund investors.

Suggested Citation

  • Thanh D. Huynh & Frank Weikai Li & Ying Xia, 2025. "Something in the air: does air pollution affect fund managers’ carbon divestment?," Review of Accounting Studies, Springer, vol. 30(3), pages 2607-2634, September.
    • Handle: RePEc:spr:reaccs:v:30:y:2025:i:3:d:10.1007_s11142-025-09875-7
    DOI: 10.1007/s11142-025-09875-7
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