Events

Prof. Mingyi Hung
Fung Term Professor of Accounting, Chair Professor
Department of Accounting
HKUST

We examine whether mandatory carbon disclosure leads firms to shift their emissions to their suppliers. Our analysis exploits the 2013 carbon disclosure mandate in the UK, which requires firms to disclose greenhouse gas emissions from their own activities (Scope 1) and purchased energy (Scope 2), but not emissions associated with purchased materials (Scope 3). We find that firms affected by the disclosure mandate reduce their Scopes 1 and 2 emissions but increase their Scope 3 emissions following the disclosure mandate. The change in Scope 1 emissions is negatively associated with the change in Scope 3 emissions, suggesting that firms substitute Scope 1 emissions with Scope 3 emissions following the mandate. In addition, this substitution is more prevalent among firms with greater Scope 1 emissions prior to the mandate, a higher proportion of opaque suppliers, and more suppliers in countries with poor environmental enforcement. Further analyses show that foreign suppliers of the affected firms increase their Scope 1 emissions after the mandate, particularly suppliers with stronger and longer relationships with the firms and in industries with fewer customers. These findings highlight the importance of considering corporate supply chains when implementing mandatory carbon disclosures.