Mandatory Corporate Carbon Disclosure: Evidence from a Natural Experiment

Abstract

We study the introduction of a unique law in the United Kingdom that mandates publicly listed firms to disclose their greenhouse gas emissions in a standardized way. Using a difference-in-differences framework, we provide evidence that firms respond to the disclosure regulation by reducing their emissions. Examining why firms reduce their emissions, we show that a mix of institutional investor, general stakeholder, and competitive pressure is likely to explain the reduction. We also study the financial effects of the regulation and find that firms disclosing low (high) emissions relative to industry peers exhibit positive (negative) abnormal returns.

Keywords: mandatory disclosure regulation, greenhouse gas emissions, climate change mitigation