We investigate the cross-sectional pricing of the exposure to environmental news
for individual stocks. We employ the Latent Dirichlet allocation model to quantify the
news coverage of environment-related news in the New York Times from 1980 to 2021.
Using the news coverage of environment-related time series, we estimate betas with
respect to the latter and study the pricing in the cross-section of stock returns. We find
that stocks in the highest pollution news beta quintile earn significantly higher stock
returns than in the lowest quintile. This outperformance survives risk-adjustment.
In contrast, betas with respect to the other environment-related topics as well as
aggregate pollution are not consistently priced. Consistent with intuition, we find that
the pollution news beta is positively related to the greenness of a company as proxied
by carbon emissions or the environmental pillar score. This suggests that the positive
pollution news premium is a reflection of the recent outperformance of green versus
brown stocks.