Center for Advancing Accounting

Corporate Disclosures for Green Supply Chains: Evidence from Scope 3 Emissions Disclosure

• In Event: Dialogue Session - Disclosures

Abstract

We examine the role of Scope 3 emissions disclosures in greening supply chains. Scope 3 emissions refer to a firm’s greenhouse gas emissions (GHG) from its value chain, including emissions from the production of goods and services purchased by the company. While Scopes 1 and 2 disclosures are common, Scope 3 disclosures are scarce as they reflect the behavior of others and require significant assumptions and estimations. Conditional on a firm choosing to disclose its Scope 3 emissions, we hypothesize that the disclosure will result in a reduction in the firm’s suppliers’ GHG emissions because the disclosure increases the firm’s incentives to monitor and collaborate with its suppliers. Using a generalized difference-in-differences research design, we find that suppliers reduce their GHG emissions after one of their major customers begins disclosing its Scope 3 emissions. We also find that the customer’s disclosure entails a greater reduction on the supplier’s emissions when the supplier poses greater climate risk for the customer, when the customer has higher bargaining power, and when the customer and supplier have stronger economic ties. Overall, our results are consistent with Scope 3 emissions disclosures helping achieve more sustainable supply chains.

Authors

• Holly Yang, Singapore Management University

• Young Jun Cho, Singapore Management University

• Jungbae Kim, Singapore Management University