Outsourcing Climate Change

60 Pages Posted: 13 Jan 2021 Last revised: 28 Jan 2022

See all articles by Rui Dai

Rui Dai

Wharton Research Data Services (WRDS)

Rui Duan

York University - Schulich School of Business

Hao Liang

Singapore Management University - Lee Kong Chian School of Business; European Corporate Governance Institute (ECGI)

Lilian Ng

Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

Date Written: January 7, 2021

Abstract

This paper examines whether and how firms combat climate change. Our study provides robust evidence that firms outsource part of their carbon emissions to foreign suppliers and shows how internal and external stakeholders significantly shape firms' environmental policies. Furthermore, firms tend to seek a foreign supplier and decrease their emission abatement efforts as pressure to reduce domestic emissions intensifies. These firms are also less incentivized to develop green technologies. Finally, we find that outsourcing emissions has real and economic consequences, with investors demanding a higher carbon premium for their exposures to carbon risks associated with increased outsourced emissions.

Keywords: Outsourcing Emissions, Imports, Stakeholders, Reputational Risk, Green Technologies, Carbon Premium

JEL Classification: G23, G30, G34, M14

Suggested Citation

Dai, Rui and Duan, Rui and Liang, Hao and Ng, Lilian, Outsourcing Climate Change (January 7, 2021). European Corporate Governance Institute – Finance Working Paper No. 723/2021, Available at SSRN: https://ssrn.com/abstract=3765485 or http://dx.doi.org/10.2139/ssrn.3765485

Rui Dai

Wharton Research Data Services (WRDS) ( email )

3819 Chestnut St
Suite 300
Philadelphia, PA PA 19104
United States

Rui Duan

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Hao Liang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

HOME PAGE: http://business.smu.edu.sg/faculty/profile/130396/LIANG-Hao

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Lilian Ng

Schulich School of Business, York University ( email )

N223, Seymour Schulich Building
4700 Keele Street
Toronto, Ontario ON M3J 1P3
Canada
+1.416.736.2100 x77994 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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