Outsourcing Climate Change

Question 1

What is the main research question of “Outsourcing Climate Change”? (2)

Answer 1

• What are firms’ motivations for outsourcing carbon emissions to foreign suppliers
• Is this behavior agency-driven or efficiency-driven.

Question 2

What are the two competing hypotheses in the paper? (2)

Answer 2

• Agency Cost Hypothesis (greenwashing/self-interest)
• Carbon Efficiency Hypothesis (emissions reduction through more efficient foreign suppliers).

Question 3

What is the difference between Scope 1 and Scope 3 emissions? (2)

Answer 3

• Scope 1: direct emissions from firm-owned operations.
• Scope 3 (upstream): indirect emissions from suppliers in the supply chain.

Question 4

What are the paper’s key findings? (3)

Answer 4

• Firms reduce Scope 1 while increasing imports, leading to rising Scope 3
• No evidence supports efficiency
• Outsourcing increases risk and cost of capital.

Question 5

How is the emission outsourcing behavior identified?

Answer 5

Merges firm-level Scope 1 & 3 emissions with import volume data and uses exogenous shocks (e.g., regulation, elections) to infer causality.

Question 6

Why do firms outsource emissions? (2)

Answer 6

• improve ESG ratings and social image by reducing visible emissions
• transfers carbon burden to suppliers abroad.

Question 7

What is the impact of outsourcing on firm performance? (2)

Answer 7

• Short-term profitability ↑, but long-term value ↓.
• Firms face higher reputational risk and cost of equity (carbon risk premium).

Question 8

What role do stakeholders play in moderating outsourcing?

Answer 8

Institutional investors and government customers pressure firms to reduce total emissions and act as governance mechanisms.

Question 9

What are the key policy implications of the paper?

Answer 9

ESG frameworks should incorporate Scope 3 more fully to prevent greenwashing and improve firm accountability

Question 10

What econometric model captures emission outsourcing? (2)

Answer 10

• OLS regressions of Scope 3 on Scope 1, imports, and their interaction
• a negative interaction term implies substitution (outsourcing).

Question 11

How do ESG ratings influence managerial behavior in the paper? (3)

Answer 11

• ESG ratings are based mainly on Scope 1
• managers reduce visible emissions for image but ignore Scope 3
• consistent with greenwashing.

Question 12

What evidence rejects the carbon efficiency hypothesis? (3)

Answer 12

• No reduction in total emissions
• No link to cleaner suppliers
• Firms with higher outsourcing invest less in green tech or abatement.

Question 13

How is “outsourced emissions” measured? (2)

Answer 13

• Aggregated supplier emissions (Scope 3 upstream) matched to firm import volumes from Panjiva
• Excludes foreign subsidiaries

Question 14

What supports the agency cost hypothesis? (2)

Answer 14

• Higher outsourcing when ESG-linked pay, entrenched managers, or higher ESG ratings
• Behavior driven by image, not sustainability.