04 Dec 2024
Recently, the article entitled "The impact of the ISSB’s validation of Scope 3 GHG emissions on US manufacturers’ stock valuations: The role of supplier complexity" coauthored by Professor Lujie Chen from International Business School Suzhou (IBSS) at Xi’an Jiaotong-Liverpool University (XJTLU) and her PhD student Jingyuan TIAN has been accepted for publication in Transportation Research Part E (CAS 1, ABDC A, Tier 1*, IF = 8.3). This research delves into how the International Sustainability Standards Board's (ISSB) validation of Scope 3 greenhouse gas (GHG) emissions disclosures affects the stock valuations of US-listed manufacturers and reveals the crucial role of supplier complexity in this process.
The ISSB's validation of Scope 3 GHG emissions disclosure is a pivotal step for US-listed manufacturers and marks a significant shift in sustainable development reporting practices. Scope 3 emissions, which cover the indirect emissions in a company's value chain, often constitute the majority of an enterprise's carbon footprint, especially in the manufacturing sector with complex supply chains. This research focuses on analyzing how the ISSB standards influence the stock valuations of US manufacturers and the impact of supplier complexity, a key factor for businesses and investors in navigating the evolving regulatory environment.
The study, using the event study methodology and cross-sectional analysis, examined 703 publicly traded US manufacturing firms. The results indicate a notable positive response in stock valuations following the ISSB's endorsement of Scope 3 emissions disclosures. This market reaction aligns with the interests of investors as the disclosure of comprehensive sustainability data enhances transparency, reduces information asymmetry, and signals an organization's commitment to environmental responsibility.
However, supplier complexity emerges as an important moderating factor, manifested in three dimensions:
(1) Supplier Horizontal Complexity
The breadth of suppliers at the same tier in a supply chain. This factor did not significantly impact the positive effect of Scope 3 disclosures on stock valuations, suggesting that diverse supplier portfolios within a tier are manageable without hindering perceived sustainability commitment.
(2) Supplier Spatial Complexity
The geographic spread of suppliers. Higher spatial complexity weakened the positive valuation effect, indicating that companies with geographically dispersed suppliers may struggle to standardize data collection and disclosure processes across regions, thus reducing the transparency of their sustainability reporting.
(3) Supplier Concentration Complexity
The degree of a company's reliance on a few major suppliers. High concentration similarly dampens the boost in stock valuation, probably because firms dependent on limited suppliers may encounter challenges if those suppliers lag in emissions transparency and reporting.
The findings suggest that while Scope 3 disclosures generally enhance market valuation, manufacturers with lower spatial and concentration complexity can better capitalize on this advantage. Therefore, supply chain optimization not only improves operational efficiency but also strengthens the credibility of sustainable development efforts.
The research results emphasize the importance for manufacturers to streamline their supply chains to maximize the financial benefits of Scope 3 emissions reporting. Enterprises should consider strategies such as diversifying suppliers, reducing geographical dispersion, and ensuring that key suppliers are aligned with sustainable development goals. Such steps can help manufacturers not only meet regulatory expectations but also enhance their attractiveness to environmentally conscious investors.
Supplier complexity serves as an important metric for evaluating a company's commitment to sustainable development. Firms that effectively manage supplier complexities are more likely to realize long-term stock performance benefits from their sustainable development efforts.
The ISSB's validation of Scope 3 provides an opportunity for manufacturers to build market value through robust sustainable development practices. By addressing supplier complexity, companies can ensure that their disclosures resonate with investors, foster trust, and enhance long-term market competitiveness. This research outcome provides an important reference for enterprise sustainable development strategies and investment decisions and will also trigger more attention and discussions in related fields.
Transportation Research Part E: Logistics and Transportation Review publishes informative and high quality articles drawn from across the spectrum of logistics and transportation research.
Professor Lujie Chen is a Senior Associate Professor of Management at Xian Jiaotong-Liverpool University. Prof Chen is Elsevier-Stanford University World's Top 2% Scientists 2024 (the only one in IBSS). She is a Fellow of the Higher Education Academy in the UK and an expert in the fields of supply chain management and business analytics. Professor. Chen have published over 60 high-quality and impactful papers in top-tier journals such as the Journal of Operations Management (UTD 24), Harvard Business Review (FT50), International Journal of Operations and Production Management (ABS 4), British Journal of Management (ABS 4), and European Journal of Operational Research (ABS 4) , among others. She has served as a guest editor for special issues of several respected journals such as International Journal of Operations and Production Management, Industrial Marketing Management, International Journal of Production Economics, and Journal of Business Research. She is currently serving as an Associate Editor for the International Journal of Operations and Production Management (ABS 4).
04 Dec 2024