Carrot or Stick? Supplier Diversity and its Impact on Carbon Emission Reduction Strategies

Abstract

Problem definition: This study examines the antecedents and consequences of knowledge sharing and monitoring based governance strategies on emissions reduction. We theorize, and empirically test, the impact of supply base diversity in industry and geographic locations on the governance strategy choices.

Academic/Practical relevance: Engaging in emissions reduction is an important priority for companies large and small. Few empirical studies have systematically examined supply chain governance strategies with large scale empirical data. Such a data-based analysis may provide managers with clues to implementing and assessing the efficacy of these strategies.

Methodology: We use a diverse set of data sources that include CDP, Compustat, Factset, and Trucost, among others. We used a multinomial logit framework to model the strategies choices. To evaluate implications of governance strategies, we used a treatment effect model to provide an estimate of the impact of adopting different governance strategies on the GHG emissions intensity changes.

Results: We find that sector and regional diversity both have a significant impact on emissions reduction strategies, yet their direct and interactive impacts are different. Regarding consequences, we find that engaging suppliers is associated with GHG emissions reduction for both buyers and suppliers. Specifically, monitoring (knowledge sharing) can lower total emissions intensity by 2.6% (3%) for the firm and 3.8% (1.3%) for supplier.

Managerial implications: Our findings provide insights for managers making decisions about GHG emissions reduction strategy and assess its magnitude.

Keywords: Supplier Diversity; Supply Chain Governance; GHG Emissions Reduction