The Effect of Mandatory Carbon Disclosure Along Global Supply Chains

We examine whether and how mandatory carbon disclosure affects the transmission of carbon emissions through a firm’s global supply chain. Our analysis uses the 2013 UK carbon disclosure regulation that requires the reporting of Scopes 1 and 2 emissions (from firms’ own activities and purchased energy) but not Scope 3 emissions (from purchased goods and services). We find that affected UK firms exhibit a decrease in reported Scopes 1 and 2 emissions, but an increase in estimated Scope 3 emissions and a shift of emissions from Scope 1 to 3 following the disclosure mandate. Investigation of Scope 1 emissions of suppliers further supports the finding that affected UK firms outsource emissions to foreign suppliers. Additionally, this increase in Scope 1 emissions is more pronounced among foreign suppliers with stronger and longer relationships with affected UK firms and in industries with fewer customers. Our findings highlight the importance of considering corporate supply chains when implementing mandatory carbon disclosures.