Under Pressure? The Link Between Mandatory Climate Reporting and Firms’ Carbon Performance

Abstract

We examine whether and how mandatory climate reporting leads to changes in firms’ carbon emissions. Drawing on legitimacy theory and using a difference-in-differences design, we assess the effect of the Greenhouse Gas Reporting Program (GHGRP), introduced by the Environmental Protection Agency (EPA) in 2010, on the carbon performance defined as carbon intensity and absolute carbon emissions of affected firms. We find that firms affected by the GHGRP improve their carbon intensity significantly more than unaffected firms after the introduction of the GHGRP, but not their absolute carbon emissions. The results are robust to changes in the difference-in-differences design. Overall, our study contributes to research on mandatory climate reporting by assessing the GHGRP’s suitability to generate a real sustainable change in firms’ operations and reduce their negative impact on our climate.

Nonfinancial Reporting and Real Sustainable Change: Relationship Status—It’s Complicated

“…The next three contributions by Fu (2023), Bauckloh et al (2023), and Crace and Gehman (2023) model real sustainable change as an explicit dependent variable, uncovering important complications with its relationship to nonfinancial reporting. Fu (2023) mobilizes signaling theory to examine how negative media coverage affects real sustainable change in the form of firm nonfinancial performance ( C to A to B in Figure 1).…”

“…In their study on how mandatory climate reporting leads to changes in firms’ carbon emissions, Bauckloh et al (2023) also question the implications of nonfinancial reporting on real sustainable change. Drawing on legitimacy theory and using a difference-in-differences design, the authors assessed the effect of the Environmental Protection Agency’s Greenhouse Gas Reporting Program (GHGRP), introduced in 2010, on carbon performance, defined as the carbon intensity and absolute carbon emissions of affected firms.…”

“…Drawing on legitimacy theory and using a difference-in-differences design, the authors assessed the effect of the Environmental Protection Agency’s Greenhouse Gas Reporting Program (GHGRP), introduced in 2010, on carbon performance, defined as the carbon intensity and absolute carbon emissions of affected firms. In doing so, Bauckloh et al (2023) make an important yet underemphasized distinction between relative and absolute emissions, namely that nonfinancial reporting may help reduce relative emissions (i.e., carbon intensity, defined as the efficiency of firms’ carbon emission-producing operations), but not necessarily absolute carbon emissions. However, a reduction in absolute carbon emissions at a global level is crucial for achieving global climate targets.…”

“…On this basis, future research should specifically determine the relevant outcome indicators in relation to social and ecological goals. Here, the work of Bauckloh et al (2023) provides an important starting point, as they show the critical difference between relative and absolute outcomes in the context of greenhouse gas emissions. Researchers can identify this distinction and examine how and why organizations would achieve one or more types of outcomes.…”

Improving environmental outcomes along food supply chains

“…Three recent studies quantify the impact of mandatory disclosure on greenhouse gas emissions. Bauckloh et al (2022) study the effect of the US Greenhouse Gas Reporting Program, introduced in 2010. They find that firms affected by the new regulation reduced their carbon intensity (defined as Scope 1 emissions relative to a firm's total assets) more than other firms.…”