The Spillover Effect of Environmental Disclosures: Evidence from Customers' Net-zero Pledges

Abstract

This paper investigates the real impact of customers’ voluntary environmental disclosures, specifically, Net-Zero Pledges (NZPs), on the direct greenhouse gas emissions of their suppliers. NZPs represent a growing trend in corporate disclosure, where companies commit to reducing carbon emissions to a minimum level by a specified date, with any remaining emissions being offset by carbon removal actions. Using firms’ connections along the supply chain and a staggered difference-in-differences design, this study provides evidence that suppliers significantly reduce their direct emissions following customers’ NZPs. This effect is more pronounced for NZPs made by customers with greater bargaining power, while suppliers’ reactions are stronger when they have higher carbon intensity and better environmental performance. Furthermore, NZPs of higher quality elicit a stronger response, especially when they limit the use of carbon offsets, set interim targets, and establish public reporting mechanisms. The evidence suggests that this reduction in emissions is achieved by suppliers’ investments in green technologies and innovation, as well as improvements in environmental policies in the years following customers’ NZPs. While these modifications do not seem to change firms’ profitability, they are associated with increased business output and capital investments, though at the expense of additional debt. These findings suggest that customers’ voluntary environmental disclosures can trigger positive spillover effects in upstream suppliers’ real operations, even in the absence of mandatory regulations.