Real Effects of the Proposed SEC Climate Disclosure Rule

We investigate the real effects of the SEC’s proposed climate disclosure rule. We hypothesize that the threat of requiring Scope 3 emissions disclosure increases affected firms’ preference for greater control over production and GHG emissions, which renders outsourcing to foreign countries less desirable. Using difference-in-differences analyses, we find evidence that treated firms reduce imports following the proposed rule, relative to control firms. The reduction in imports is concentrated in firms for which disclosing Scope 3 emissions may be costlier: with material Scope 3 emissions, not voluntarily disclosing GHG emissions, in industries with fewer supportive comments on mandating disclosure of Scope 3 emissions in the proposal, and in imports from more pollutive countries. The reduction in imports is also concentrated among firms with greater ability to reduce foreign outsourcing: with less reliance on imports of minerals, with higher excess production capacity, and without publicly stated GHG emissions reduction targets. Finally, there is some evidence that, following the SEC’s proposed rule, affected firms increase in-house production and improve their environmental efforts. Collectively, our findings suggest that the SEC’s proposed climate disclosure rule induces real changes in corporate decisions.