Do Businesses That Disclose Climate Change Information Emit Less Carbon? Evidence From S&P 500 Firms

Unlike prior literature, this paper exploits heterogeneity in the substantive contents of firms’ voluntary carbon disclosure to estimate the impact of their participation in the CDP (formerly the Carbon Disclosure Project) on firms’ entity-wide carbon footprints. Heterogeneity in firms’ substantive contents of disclosures pertains to their level of climate mitigation activity, ranging from basic transparency to carbon management and to higher levels of climate action, such as third-party verification of entity-wide carbon emissions. This paper makes use of the U.S. Environmental Protection Agency’s introduction of the Clean Power Plan, which during 2011–2016 exerted regulatory pressure on GHG-intensive firms, and the interaction between regulatory pressure and corporate management, to model firms’ decision to participate in the CDP and their subsequent environmental performance. Results based on a difference-in-difference-in-differences estimator, nested in a two-stage endogenous binary-variable model, indicate that there is evidence of increases in total carbon emissions by firms that have instituted carbon management practices but did not certify their carbon disclosures with third-party audits, among other more advanced forms of carbon management. Despite this, by one measure of carbon emissions intensity, firms’ basic carbon transparency is linked to increased carbon efficiency. Sector regressions show that consumer-oriented sectors engaged in “cheap talk†by participating in voluntary carbon disclosure at high levels irrespective of their carbon footprints, whereas firms that were already carbon efficient in GHG-intensive sectors used their participation in the CDP to signal their climate leadership to regulators and other stakeholders. Findings are robust to alternative specifications and an alternative modeling approach.