Real Effects of Proposed Scope 3 Disclosures

69 Pages Posted: 15 Mar 2024 Last revised: 23 Jan 2025

See all articles by Mary Ellen Carter

Mary Ellen Carter

Boston College - Department of Accounting; European Corporate Governance Institute (ECGI)

Lian Fen Lee

Boston College - Carroll School of Management

Enshuai Yu

Boston College - Carroll School of Management

Date Written: February 26, 2024

Abstract

We investigate the real effects of proposed Scope 3 disclosures. We hypothesize that the threat of requiring Scope 3 emissions disclosures increases affected firms’ preference for greater control over production and GHG emissions, which renders outsourcing to foreign countries less desirable. We use the SEC’s March 2021 statement requesting input for climate-related disclosures as a shock to the probability that Scope 3 emissions disclosures would be required. Using difference-in-differences analyses, we find evidence that affected firms reduce imports following the proposed rule, relative to unaffected firms. The reduction in imports is concentrated in firms for which disclosing Scope 3 emissions are likely costlier: with material Scope 3 emissions, not voluntarily disclosing GHG emissions, in industries with fewer supportive comments on mandating disclosure of Scope 3 emissions in the proposal, and in imports from more pollutive countries. The reduction is also concentrated among firms with greater ability to reduce foreign outsourcing: with less reliance on imports of minerals, with higher excess production capacity, and without publicly stated GHG emissions reduction targets. Further, the reduction is more pronounced among firms facing Scope 3 disclosure pressures from the EU and California. Finally, we find some evidence that affected firms increase in-house production and improve their environmental efforts. Collectively, our findings suggest that the threat of Scope 3 disclosures induces real changes in corporate decisions.

Keywords: Climate disclosure; GHG emissions; supply chain; real effects

JEL Classification: G28; M41; L14; L23

Suggested Citation

Carter, Mary Ellen and Lee, Lian Fen and Yu, Enshuai, Real Effects of Proposed Scope 3 Disclosures (February 26, 2024). European Corporate Governance Institute – Finance Working Paper No. 972/2024, Available at SSRN: https://ssrn.com/abstract=4743426 or http://dx.doi.org/10.2139/ssrn.4743426

Mary Ellen Carter (Contact Author)

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

European Corporate Governance Institute (ECGI) ( email )

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

Lian Fen Lee

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Enshuai Yu

Boston College - Carroll School of Management ( email )

Fulton Hall 533, 140 Commonwealth Avenue
Chestnut Hill, MA MA 02467
United States

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