Real Effects of Proposed Scope 3 Disclosures

We examine whether the threat of requiring Scope 3 emissions disclosures increases affected firms’ preference for greater control over production and GHG emissions, which renders outsourcing to foreign countries less desirable. Using the SEC’s March 2021  request for  input on climate-related disclosures as a shock to the probability that Scope 3 emissions disclosures would be required, we find that affected firms reduce imports relative to unaffected firms. The reduction is concentrated in firms for which disclosing Scope 3 emissions are likely costlier and among firms with greater ability to reduce foreign outsourcing. Further, the reduction is more pronounced among firms facing Scope 3 disclosure pressures from the EU and California. Finally, we find some evidence that affected firms increase in-house production and improve their environmental efforts. Collectively, our findings suggest that the threat of Scope 3 disclosures induces real changes in corporate decisions.