Are Firms Voluntarily Disclosing Emissions Greener?

Do firms voluntarily disclosing emissions generate less greenhouse gas (in their in-house and outsourced operations)? We examine this question using emission data associated with Scope 1 and 3 emissions reported by firms or estimated by S&P Trucost over a 19-year period from 2002 to 2020. We use regression models to tease out the effect of voluntary carbon disclosures by controlling for firm characteristics and other measures. Our empirical results reveal that companies who make voluntary carbon disclosures tend to generate less "internal emissions" (i.e., Scope 1 emissions) but more "external emissions" generated by upstream suppliers' operations (i.e., Scope 3 emissions). The net effect is that disclosing firms generate more emissions in the entire supply chain. This result implies that disclosing firms are either "outsourcing" their emissions to upstream suppliers knowingly via greenwashing or "shifting" emissions to suppliers unknowingly due to their lack of complete information about Scope 3 emissions. Our results persist in several robustness checks. In addition, we investigate the implications of mandatory environmental reporting regulations imposed by different governments as encouragements for emission disclosure and find that reporting regulations are effective — they can nudge disclosing firms to reduce total emissions. More importantly, when these regulations take effect, disclosing firms tend to reduce their Scope 1 (in-house) emissions and do not increase their Scope 3 emissions generated by their upstream suppliers.