The Behavioral Effects of Corporate GHG Emissions Disclosures

By Cynthia Hanawalt and Andy Fitch

In recent years, roughly 30 nations have implemented regulatory regimes that mandate some type of greenhouse gas (GHG) emissions disclosure from corporations. As GHG emissions disclosure regimes continue to take hold, several key questions arise: will they prompt meaningful and sustained GHG emissions reductions, or will they merely serve to document corporations’ unabated emissions? And if these regimes do lead to lasting emissions reductions, precisely what causes the changes in corporate behavior? These questions are particularly relevant as climate advocates grapple with the merits of disclosure as a tool for real emissions impact, and as policymakers refine disclosure requirements to best fit their range of environmental and investor protection goals.

A new white paper published by the Sabin Center for Climate Change Law reviews the academic literature evaluating mandatory and voluntary GHG emissions disclosure regimes, and analyzes key theories of impact, synthesizing the classic “you manage what you measure” justification of corporate disclosure with prevailing social-science models of effective regimes. First, the report outlines the contemporary theoretical framework for effective “double-embedded” disclosure regimes, which depend on feedback loops to drive change. Second, the report evaluates mandatory and voluntary disclosure regimes’ measured effects on corporate GHG emissions. Because relatively little research has been published on corporate behavioral responses to GHG emissions disclosures, the report also considers case studies of analogous disclosure programs, including the Environmental Protection Agency’s (EPA) Toxic Release Inventory and the Securities and Exchange Commission’s (SEC) executive compensation disclosure regimes. Third, the report evaluates evidence of causal mechanisms by which reporting emissions data can lead to actual emissions reductions. Finally, the report outlines a research agenda for expanding the empirical evidence on disclosure regimes’ impacts in the current regulatory environment.

Key findings from the report include:

Evidence from natural experiments in the U.S., the U.K., and France shows that climate risk disclosures by corporations and by investment funds can prompt GHG emissions reductions. Mandatory, quantitative, and uniform disclosures tend to yield more meaningful reductions than voluntary, qualitative, or open-ended disclosures. Requiring company-wide (rather than plant-level) data, and accounting for merely nominal “reductions” via assets sales, further limit the prospects for corporate greenwashing. The resulting reductions can be significant, with companies covered by the U.K.’s 2013 disclosure mandate reducing emissions by more than 15% relative to their non-covered peers. 

Even mandatory and uniform disclosure regimes tend to produce uneven results, showing significant variation depending on factors such as a company’s legal jurisdiction, commercial marketplace, and public profile. And, when given the chance, some reporting firms will prioritize improving their disclosure ratings over abating their harmful externalities, will obscure these externalities behind misleading data points, or will strategically evade reporting altogether. For these reasons, double-embeddedness proves essential to effective disclosure frameworks, with both corporate disclosers and public recipients of the information providing vital feedback to each other, in a virtuous cycle that creates pressure for continued innovation.

The causal mechanisms by which disclosure regimes prompt meaningful emissions reductions will only grow more complex: as the U.S. likely withdraws its nascent federal disclosure requirements, even as burgeoning disclosure regimes established by California and the European Union begin to cover many U.S. firms; and as both mandatory and voluntary regimes increasingly supplement their existing disclosure obligations with requirements for Scope 3 reporting (of emissions up and down a firm’s supply chain). These broader policy developments point to pivotal questions for further research on successful disclosure regimes, such as: how do jurisdiction-specific disclosure regimes affect the behavior of companies outside of the covered jurisdiction? And: when and why does required disclosure for one entity prompt voluntary “peer disclosure” by comparable but uncovered entities?

Advocates of disclosure should celebrate their achievements and apply lessons learned to future disclosure initiatives. However, the framework to achieve desired outcomes is not straightforward. Many factors specific to technologies, industries, marketplaces, and jurisdictions complicate any clean conceptual model for how an effectively designed disclosure regime achieves substantive policy goals. Ever-evolving economic conditions also make it likely that even effectively designed disclosure regimes, if left static, will soon become stale. Dynamic disclosure mechanisms, continually updated as disclosers and disclosees provide each other with impetus for further actions, are therefore essential for tracking and mitigating overall economy-wide emissions—the metric that counts most for climate change.

Read the full white paper on Columbia’s Law School's Scholarship Archive here.