Climate Policies in Supply Chains

Abstract

This paper shows that supply chain connections influence the adoption of climate-responsible policies. Using granular firm-level data, we show that suppliers adopt climate actions (such as emission initiatives and emission targets) and climate governance measures (such as board oversight and explicit managerial incentives) following customer firms' adoption of emission reduction targets. Such transmissions are driven by relative bargaining power rather than through a reconfiguration of customer firms' supply chain. However, we find no effect on adopting suppliers' climate outcomes or its leading indicators. This \textit{policy-outcome} gap is lower when suppliers have higher gross margins, and customers can better monitor suppliers' climate actions. Our results have important implications for public policies on the environmental due diligence of supply chains.

Keywords: Climate Action, Climate Governance, Supply Chain Networks

JEL Classification: F18, F64, G34, G38, L16, L24, Q54