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

Thanh D. Huynh; Frank Weikai Li; Ying Xia

doi:10.1007/s11142-025-09875-7

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

Thanh D. Huynh, Frank Weikai Li, Ying Xia^*

^*Corresponding author for this work

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

1 Citation (Scopus)

3 Downloads (CityUHK Scholars)

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. © The Author(s) 2025.

Original language	English
Pages (from-to)	2607–2634
Number of pages	28
Journal	Review of Accounting Studies
Volume	30
Issue number	3
Online published	21 Feb 2025
DOIs	https://doi.org/10.1007/s11142-025-09875-7
Publication status	Published - Sept 2025
Externally published	Yes

Funding

Open Access funding enabled and organized by CAUL and its Member Institutions.

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 3 Good Health and Well-being

Research Keywords

Air quality index
Carbon disclosures
Carbon divestment
Mutual funds

Publisher's Copyright Statement

This full text is made available under CC-BY 4.0. https://creativecommons.org/licenses/by/4.0/

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title = "Something in the air: does air pollution affect fund managers{\textquoteright} carbon divestment?",

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{\textquoteright}s carbon-emissions disclosures and fund managers{\textquoteright} 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. {\textcopyright} The Author(s) 2025.",

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AU - Li, Frank Weikai

AU - Xia, Ying

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Y1 - 2025/9

N2 - 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. © The Author(s) 2025.

AB - 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. © The Author(s) 2025.

KW - Air quality index

KW - Carbon disclosures

KW - Carbon divestment

KW - Mutual funds

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UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-85218249045&origin=recordpage

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DO - 10.1007/s11142-025-09875-7

M3 - RGC 21 - Publication in refereed journal

SN - 1380-6653

VL - 30

SP - 2607

EP - 2634

JO - Review of Accounting Studies

JF - Review of Accounting Studies

IS - 3

ER -

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

Abstract

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Research Keywords

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