Essays on Climate Disclosure Regulations

 This dissertation contributes to the understanding of the economic impacts of climate disclosure regulations on firms’ behaviors. It consists of two chapters. 

The first chapter, co-authored with Nick Muller and Pierre Liang, examines the real effects of the first nationwide mandatory climate disclosure regulation in the U.S., the Greenhouse Gas Reporting Program (GHGRP). Starting in 2010, the Environmental Protection Agency (EPA) required the disclosure of greenhouse gas emissions by facilities emitting more than 25,000 metric tons of CO2 per year. We construct a novel set of emission data on power plants around the regulation to examine the causal effects of GHGRP in the utility industry. Using a difference-in-difference research design, we find that while as intended by the policy power plants that are subject to the GHGRP reduced carbon dioxide emission rates by 7%, the emission reduction no longer holds at the firm level. Specifically, we detect evidence of strategic behavior by firms that own both GHGRP plants and non-GHGRP plants. Presumably unintended by the policy, such firms strategically reallocate emissions between plants to reduce GHGRP-disclosed emissions. This evidence suggests that the reporting program is costly to the affected firms which reacted both positively towards the policy objectives and also somewhat negatively at the same time, not as intended by the policymakers. We also provide evidence of a stronger reduction in plant emissions by publicly traded firms, which is consistent with prior literature supporting shareholder pressure as a primary channel through which mandatory Corporate Social Responsibility (CSR) reporting programs affect firm behavior. 

The second chapter examines how mandatory climate disclosure affects firms’ reporting behavior and the quality of the disclosed information. Investors often evaluate firms’ sustainability performance by collectively assessing the three pillars of ESG: environment (E), social (S), and governance (G). While ESG is commonly lumped together, this paper proposes and provides evidence of the difference among the pillars in terms of firms’ reporting incentives and information quality. Specifically, exploiting variations in the adoption of a climate disclosure mandate, I find that affected firms are less likely to voluntarily disclose environmental information (substituting effect on “E") but more likely to disclose general sustainability information (complementary effect on “ESG"). At the same time, the difference-in-difference design shows that affected firms’ information quality on environmental information signifi?cantly improves following the mandate, whereas no significant improvements are found for the overall ESG information quality. Collectively, these results suggest that comprehensive sustainability disclosure regulation plays a crucial role in firms’ disclosure incentives.