Center for Advancing Accounting

The Emissions Allocation Decision: The Firm, Environmental Reporting, and Disparities in Pollution Exposure

• In Event: Emissions - Disclosure and Tracking

Abstract

This paper uses data from the Environmental Protection Agency’s (EPA’s) Toxic Release Inventory to examine the effects of plant-adjacent demographics on the firm’s emissions allocation decision under different conditions of the external information environment. We find that firms disproportionately allocate emissions to plants sited near minority and poor populations and that this relationship increases for emissions when scientific certainty about toxicity is high. We find that reductions in information processing costs about toxicity, however, may mitigate preexisting demographic disparities. Our findings have implications for recent proposals and efforts by the Securities and Exchange Commission (SEC) to regulate environmental disclosure. We provide evidence that standardized disclosures designed to reduce information processing costs may offer a path forward for mandated environmental disclosure by the SEC that does not conflict with the EPA’s stated goal of creating equity in protection from environmental and health hazards and in access to related decision-making processes.

Authors

• Harlow Loch, Michigan State University

• Jing Kong, University of Michigan–Dearborn