Mandatory carbon disclosure and new business creation

This paper studies how mandatory greenhouse gas disclosure affects new business formation. We find a significant increase in business entry following the implementation of the Greenhouse Gas Reporting Program in affected industries, relative to unaffected controls. We propose two channels. First, through a production channel, disclosure pressures incumbent firms to reduce emissions by scaling back production or reallocating resources toward cleaner technologies, weakening incumbents’ competitive positions and creating space for new entrants. Second, through an information channel, public disclosure of previously proprietary emissions data helps potential entrepreneurs identify viable entry opportunities. We present evidence consistent with both channels. Incumbent firms reduce economic activity and experience declines in profitability, and entry is concentrated in industries facing greater emissions reductions and public scrutiny. Additionally, regulatory and industry commentary highlights concerns over the proprietary nature of disclosed emissions data. Overall, our findings reveal an unintended yet economically meaningful consequence of environmental disclosure mandates.