Combat climate change: the power of government purchasing

Omri Even-Tov|Guoman She|Lynn Linghuan Wang

Feb 26. 2025

Key Takeaways

Government purchasing can influence firms’ environmental policies: The study explores how opportunities to work with the government, known as procurement opportunities, can impact a company’s environmental commitments and actions.
• This study highlights the implication of government customers’ screening efforts and examines disclosure about non-financial, climate-related topics, which are one of the main non-pricing-related factors in the contracting process.
Companies often use voluntary disclosures to communicate their environmental strategies. When presented with procurement opportunities, firms are likely to increase their environmental disclosures.
Firms that exposed to government procurement opportunities increased their climate disclosures by 24% relative to other firms.
Climate disclosures align with real actions: Companies that increased their climate disclosures significantly reduced their toxic emissions and were more likely to file for green patents, suggesting that they are taking real actions aligned with their environmental disclosures.

Source Publication: Even-Tov, O., She, G., Wang, L. L., & Yang, D. (2025). How government procurement shapes corporate climate disclosures, commitments, and actions. Review of Accounting Studies, 1-47.

Background and Research Question.

This research examines the influence of governmental procurement opportunities on corporate environmental commitment. Specifically, it scrutinizes the extent to which these procurement opportunities shape the nature and volume of environmental disclosures made by firms about their strategies and actions. This study aims to shed light on the interplay between government customer screening efforts and corporate sustainability practices.

Corporations often disclose information about their environmental commitments and activities. Such disclosure especially important given the scarcity of data on firms’ sustainability practices. The interviews indicate that government procurement officers, responsible for selecting companies for partnerships, use these disclosures to evaluate a company’s environmental strategies. Consequently, it is anticipated that corporations would amplify their environmental disclosures in response to potential procurement opportunities with governmental entities.

Data and Method.

This study analyses U.S. firms headquartered across U.S. counties from 2008 to 2017. The research utilizes the revised county-level population estimates from the 2010 census (census shock hereafter) as an exogenous source of variation in prospective procurement opportunities across counties. The idea is that federal funding allocation to state and county governments relies heavily on local population estimates. Population estimates in non-census years are established through the “postcensal” estimation method and are subject to revision when new census counts are available. In 2012, when the Census released its 2010 census count, the federal government upwardly adjusted the allocation of federal funds to counties that experienced a high census shock. This paper employs a tripe-difference research design to compare changes in climate-related disclosures for firms with high versus low exposure to government contracts headquartered in high-census-shock versus low-census-shock counties, both before and after the census shock.

This study follows Sautner et al. (2022) and use discussion about climate-related topics, or “climate disclosures,” as our primary environmental disclosure measure. Specifically, it looks at earnings conference calls and use the proportion of discussions devoted to climate topics to capture management communication on these issues.

Figure 1: Heatmap of Census Shock

Note: This figure presents a heatmap of the 2010 population revision across counties. Population revision is defined as the logarithmic difference between the county’s census count and its postcensal population estimate. The color scale on the left represents the magnitude of population change, with darker colors indicating larger revisions.

Results.

The results show that following the census shock, firms headquartered in census shock counties with high exposure to government contracts increase climate disclosures by 24% relative to other firms. Consistent with increased disclosure in response to government spending, this study shows that increased climate-related discussions are characterized by a positive tone and focus on investment opportunities rather than regulatory or physical risks.

Further analysis shows a more pronounced effect of high census shock on disclosure when the government spending amount is more material and when firms ex ante have a lower sustainability rating and are thus more likely to benefit from adopting sustainable strategies, suggesting that government spending incentivizes firms to increase disclosure to convey their environmental efforts, achievements, or commitments.

Supplier firms also take actions aligned with their disclosure. Results show that government-contract-dependent firms that increase climate disclosures significantly reduce toxic emissions by 8.5% in facilities located in counties experiencing high census shocks. Also, these firms are more likely to file for green patents, suggesting they invest in green product development. This evidence supports that firms use disclosure to signal commitment to more environmentally sustainable operations and undertake real actions aligned with their environmental disclosures.

This study follows Sautner et al. (2022) and use discussion about climate-related topics, or “climate disclosures,” as our primary environmental disclosure measure. Specifically, it looks at earnings conference calls and use the proportion of discussions devoted to climate topics to capture management communication on these issues.

Figure 2: Dynamic Effects of Census Shock on Climate Disclosure

Note: This figure illustrates the dynamic effects of a census shock on climate disclosure for firms with high exposure to government contracts. The benchmark period is 2008. The estimated coefficients and their 95% confidence intervals are presented.

Implications

This study is critical because it shows that government spending can encourage companies to disclose more about their green efforts and actually take action. This also has important implications for policy, suggesting that government initiatives can help move towards a greener economy by encouraging companies to strengthen their commitment to addressing climate change.