This paper investigates how the exposure of secured lenders to their debtors' environmental liability affects employment, production and pollution. Using a US federal reform as a novel natural experiment, I show that firms increase on-site pollution, cut investment in abatement technology and incur more environmental regulatory violations when lenders are less responsible for the environmental liabilities of their collateral. The effects are stronger for firms that are debt-dependent and close to bankruptcy. The impact on firms' production and employment is close to zero and precisely estimated, suggesting that lenders monitor their debtors' environmental compliance with limited distortion on debtor operations.