Reduction in Corporate Greenhouse Gas Emissions Under Prescriptive Disclosure Requirements

Abstract

We study the real and financial effects of a unique law in the United Kingdom that mandates publicly listed firms to disclose their greenhouse gas emissions (GHG) in a standardized way in their annual reports. Firms respond to the law by reducing GHG emissions by about 16 percent. Firms reduce emissions through costly operational adjustments. Examining why firms reduce emissions, we present evidence consistent with the views that the regulation increased the future costs of high emissions and facilitated across firm comparisons. We conclude that financial motivations push firms to reduce GHG emissions when mandatory emissions disclosure requirements are introduced.