Supply Chain Carbon Footprinting and Climate Change Disclosures of Global Firms

Abstract

The content of climate change disclosures of large, global companies evolved from 2007 to 2016. Within that window, the same set of firms started measuring and disclosing their supply chain carbon emissions. Does carbon footprinting influence the nature and content of a firm's disclosure on the climate change risks that are expected to affect its business? We explore this question using more than 10,925 climate change disclosures collected by the CDP (formerly the Carbon Disclosure Project) from 2,003 firms worldwide. We use singular value decomposition and text similarity scores to quantitatively examine the content of the CDP disclosures from 2007 to 2016. Using fixed effects and dynamic panel models, we find that measuring supply chain carbon emissions (Scope 3) explains a substantial shift in the content and nature of the disclosures. We find no evidence that measuring and disclosing direct emissions (Scope 1) are associated with substantial changes in the content of the disclosures. One explanation for this is that most of the climate change-related risks are in the supply chain, not within the company boundaries of large, global firms. Our results show the importance of encouraging firms to voluntarily measure their supply chain carbon emissions if they are not yet aware of their contribution and exposure to climate change. Our work shows that firms’ response to climate change is dynamic, and it may take a decade to detect these shifts.