Optimal Design of Climate Disclosure Policies: Transparency versus Externality

Abstract

Does a more transparent climate disclosure policy induce lower emissions? This paper examines the welfare implications of transparency in climate disclosure regulation. Increased disclosure transparency could result in a larger equilibrium externality, but never leaves the firm worse off. Consequently, mandating full disclosure is no different from maximizing the firm's private benefit while disregarding the ensuing externality. Transparency beyond binary disclosure is necessary only when the firm holds private information about its incentives for emission reduction. I provide conditions under which focusing on threshold disclosure policies entails no loss of generality.