Corporate Emissions Targets as Demand Signals for Supply Chain Coordination

We examine whether corporate emissions reduction targets influence investment in climate solutions beyond the announcing firm. We hypothesize that emissions targets can function as forward-looking demand signals, shaping suppliers’ expectations about future procurement needs for low-carbon inputs and technologies. Using granular supply-chain data and controlling for industry time trends, we find that suppliers increase their climate solution activity following emissions target announcements by their direct customers. The results are directionally stronger when the customer relationship is more economically important and when suppliers face greater uncertainty. Notably, supplier responses remain statistically positive even for targets with limited ex-ante credibility, consistent with the cheap talk equilibria in which costless signals remain informative when sender and receiver preferences are sufficiently aligned. To address endogeneity and capture broader spillovers, we implement a Bartik-style instrumental variable strategy that combines country-level climate concern with supplier-industry exposure to countries through customer-industries and find evidence that targets influence supplier investment beyond directly linked customer-supplier relationships. These findings suggest that corporate emissions targets can generate market-wide demand signals that reallocate investments toward climate solutions.