Governance Externalities of Climate-Related Disclosures: Evidence from Facility Emissions

We examine governance externalities of a geographic peer’s climate-related disclosures on local emissions. We expect a firm’s local plants to emit a lower amount of greenhouse gases when its geographic peer provides climate-related disclosures and attracts local attention to environmental issues. Using plant-level emissions data and a generalized difference-indifferences research design, we find that local plants decrease their emissions after another firm with plants in the same county initiates climate-related disclosures. We also find that this effect is stronger for plants in counties with higher income and higher education levels and for plants of firms with higher risk exposure to climate issues and lower transient institutional ownership. These results are robust to several tests that alleviate the concern that omitted local economic factors may lead local plants to reduce their emissions. Overall, our results are consistent with a monitoring effect of voluntary disclosures on local peers.