The Ecological Impact of the Europan Industry and its relation to the cost of debt

Milan, February 7th, 2014


The existence of a strong link between economic health of an industry and its ecological footprint has been brought dramatically to the fore by the Ilva Taranto case, where the courts have asked the termination of the plant due to the unacceptable and persistent level of pollution damage on the community of Taranto at large. The finance of the company are in dire straits, and a tradeoff between economic survival of the firms and the level of health in the community is dramatically evidenced.


How pervasive is this link between pollution, health and finance? Is it the case that economics and ecology must be considered alternative goals? Is it there another way out?


We think it is. We show that corporations that pollute less have a lower cost of debt. Hence, aside from the impact of regulation, there is an economic benefit in being more friendly to the health of the local community, which is going to ease the “not in the backyard” approach of people and local politician to the choice of location of potentially polluting plant.


We contribute to the debate here by following our first exploration of the ecological footprint of the largest corporations worldwide, Advantage Financial is currently refining the search for a robust link between the ecological footprint of EU corporations and the cost of debt, by exploiting the data on air pollution collected by the European Environmental Agency for the most ecological intensive industries and plants located in its territory. 1


Historically, the most contentions ecological impact event In Italy as related to dioxin contamination in, Seveso, Lombardy  Given the restructuring of many manufacturing sectors, and the exit of our country from some of the high capital intensive industries such as the chemical-pharmaceutical industry, steel is probably the most polluting industry located on our premises (Ilva, Thyssen-Krupp). The other sensitive area is that of power plants, which are scattered across the country. The ongoing dispute between Enel and Greenpeace on the planned start of new Enel coal power plants is one of the most notable ones. Projects by Croazia, for Deepwater oil Search in the Adriatic sea, are another notable development.


We show that it is possible to exploit the information collected by the EEA to study the impact of the ecological footprint on the cost of debt. Here is how we proceed. Firms belonging to these sector must collect data on air pollution by source and transmit them to the EEA, which publishes the data on its website. On its website, the EEA publishes data on airborne emissions in tons as well as in term of economic damage, measured in terms of the average life lost due to pollution agents. The last criteria allows us to compute an aggregate measure of ecological footprint. We then matched data at the plant level with economic account on a consistent sectorial and geographical basis (in the case of the largest concerns owning more than a plant, we aggregated the impact data.


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