Major customers and carbon footprints along the supply chain

Abstract

This paper examines whether major corporate customers curb corporate carbon emissions along the supply chain. We show that suppliers with a more concentrated customer base have significantly lower carbon emissions. The results are robust to alternative measures of carbon emissions and customer concentration, alternative sample, alternative explanation, and various approaches to mitigate endogeneity concerns. The effect is more pronounced when major customers have made emission-reduction commitment, when they are exposed to greater climate regulatory shocks and risks, and when they become more concerned about regulatory scrutiny. Moreover, the curbing effect of major customers on supplier carbon emissions is stronger when customers have lower switching costs and stronger bargaining power over suppliers. We show that one way through which suppliers reduce emissions is by adopting green technologies. Our study highlights the role of major customers in facilitating the transition to a low-carbon economy through decarbonization along the supply chain.