The Hidden Economics Behind Supply Chain Greenwashing

Why Supply Chain Climate Pledges Often Fail to Cut Emissions

Corporate climate plans increasingly reach far beyond factories, offices, and vehicle fleets owned by the company making the pledge. For many large businesses, most emissions sit inside the supply chain, where thousands of independent suppliers produce materials, components, packaging, and finished goods.

That creates an obvious strategy: pressure suppliers to adopt emissions targets of their own. Yet a new study by Swarnodeep Homroy and Asad Rauf suggests that obtaining a commitment is much easier than producing an environmental result.¹

After examining climate disclosures and commercial relationships involving 793 firms from 2010 through 2020, the researchers found that suppliers became more likely to introduce climate policies when major customers adopted emissions-reduction targets. The influence was strongest when customers possessed greater bargaining power. However, the newly adopted policies generally did not lead to lower supplier emissions, additional capital spending, higher research and development expenditure, or more green patents.

The exception was financially flexible suppliers with high gross margins. That distinction changes how investors should interpret corporate sustainability claims. A customer can demand another policy, target, or disclosure. It cannot create the cash flow required to replace machinery, redesign a production line, or commercialize a cleaner technology unless the economics of the relationship support that investment.

Customer Pressure Spreads Climate Policy Through Supply Chains

The researchers combined granular CDP climate disclosures with FactSet supply-chain data. Their central measure of downstream pressure asked whether at least one customer of a supplier had established an emissions-reduction target.

This pressure expanded quickly. The proportion of suppliers exposed to it rose from approximately 30% in 2011 to 80% in 2020. Suppliers facing customer pressure became more likely to adopt emissions targets, reduction initiatives, board oversight, climate strategies, and climate-linked managerial incentives.

The pattern was not simply the result of large companies replacing high-emission suppliers with cleaner ones. The study found that the changes occurred within continuing customer-supplier relationships. Customer commitments were cascading upstream through existing commercial networks.

Bargaining power helps explain why suppliers respond. Losing a major customer can be far more damaging to a supplier than replacing one supplier would be for a large buyer. Adopting a climate policy can therefore become part of maintaining commercial legitimacy, even when the supplier cannot afford the physical changes needed to meet the target.

The Difference Between Climate Compliance and Decarbonization

The findings expose two very different forms of climate action. The first is administrative. A supplier can assign board oversight, publish a strategy, add environmental metrics to executive compensation, or announce a target. These actions may improve accountability, but they are relatively inexpensive.

The second is operational. Reducing emissions can require efficient furnaces, renewable electricity, lower-carbon materials, redesigned products, new logistics systems, or years of research. These measures demand capital and may initially raise production costs.

That difference helps explain why the study found policy adoption without corresponding changes in emissions or leading indicators such as investment and patenting. The finding does not establish that suppliers intentionally deceived customers. Intent is difficult to observe, and a company may sincerely adopt a target that it lacks the resources to achieve. Still, the result is a policy-outcome gap that can make a supply chain appear greener before its operations become greener.

Investors should therefore treat the following as separate questions:

• Has the supplier announced a climate commitment?
• Has it allocated capital to deliver that commitment?
• Do its commercial terms make the investment financially viable?

This distinction also applies to emerging environmental markets. A recent BHP and Amazon copper emissions pilot seeks to connect buyer demand with lower-carbon production through environmental attribute certificates. Such mechanisms become more credible when they reward verified improvements rather than policy adoption alone.

Procurement May Be the Missing Climate Technology

The most useful insight from the research is that procurement itself can function as climate infrastructure. Many supply contracts primarily reward low prices, timely delivery, and acceptable quality. If a customer simultaneously demands decarbonization while holding supplier prices near production costs, those objectives conflict.

Better data can identify the problem but cannot finance the solution. Digital monitoring, carbon accounting, and traceability systems can reveal where emissions occur. As Securities.io has explored in its coverage of digital technology and supply-chain resilience, connected systems can improve visibility and decision-making across industrial networks. The next step is using that information to change how capital and commercial incentives move through those networks.

Several arrangements could help convert customer ambition into supplier investment:

Longer contracts can give suppliers confidence that they will have enough future revenue to recover the cost of new equipment. Preferential financing can reduce the cost of capital for verified projects. Advance purchase commitments can create demand for low-carbon materials before those products achieve conventional scale. Cost-sharing agreements can distribute the burden between the customer seeking the reduction and the supplier delivering it. A price premium tied to independently measured emissions could reward performance rather than paperwork.

This is also where sustainable finance becomes relevant. Recent Securities.io analysis of financial technology for sustainable finance shows how digital infrastructure can verify climate claims and route capital. The study indicates why both functions matter. Measurement without financing risks documenting a problem that suppliers remain unable to solve.

How Investors Can Test Corporate Scope 3 Claims

For investors, a large supplier-engagement program is not automatically proof of decarbonization. Participation totals, signed pledges, and training sessions measure activity. They do not necessarily measure environmental outcomes.

A stronger assessment begins with absolute and intensity-based emissions, then looks for capital spending, procurement changes, financing arrangements, and product-level improvements that could explain those results. Investors should also examine whether reductions have been independently verified and whether company reporting clearly separates estimated, avoided, and directly measured emissions.

The comparison between absolute emissions and emissions intensity is particularly important. A growing company may reduce emissions per unit of revenue while its total footprint continues to expand. Both figures can be accurate, but they answer different questions. One measures operational efficiency, while the other measures total atmospheric impact.

Investors can apply the same logic to green bonds and other labelled instruments. Securities.io’s examination of green bonds and greenwashing risks similarly emphasizes the need to connect financial labels with measurable real-world outcomes.

Walmart Offers Investors a Large-Scale Test Case

Walmart provides a relevant example for investors because its enormous purchasing network gives it both substantial influence over suppliers and substantial exposure to value-chain emissions. Its Project Gigaton initiative asks suppliers to pursue emissions reductions across areas including energy, waste, packaging, transportation, product use, and nature.

The company reports that more than 4,300 suppliers disclosed progress through the program in fiscal 2026. Walmart also offers suppliers measurement resources, training, implementation guidance, and financing programs, making the initiative broader than a simple request to publish targets. Its latest climate reporting nevertheless illustrates the measurement challenge: Scope 3 emissions intensity declined 8.29% from fiscal 2022, while estimated absolute Scope 3 emissions increased to 635 million metric tonnes of carbon dioxide equivalent as the business and product mix grew.

That does not invalidate the program. It shows why investors need several measures and why supplier finance matters. Walmart represents the kind of powerful customer that can spread environmental expectations through a global supply chain. The long-term investment question is whether its procurement tools, financing support, and supplier programs can translate influence into absolute reductions at scale.

Walmart Inc.

Walmart offers investors exposure to one of the world’s largest real-world experiments in supply-chain decarbonization. The company is not a pure-play climate investment, and its retail operations remain the primary investment case. However, its purchasing scale creates an unusual ability to test whether commercial incentives, supplier support, and emissions reporting can work together across thousands of businesses.

Climate Targets Need an Economic Delivery System

The study’s conclusion is not that supplier climate policies are worthless. Targets and governance can establish accountability and create a foundation for action. The problem arises when companies treat those commitments as the finished product.

Real decarbonization requires an economic delivery system. Suppliers need sufficient margins, affordable financing, durable contracts, and credible demand for cleaner products. Customers that possess the power to demand climate action may also possess the power to make it investable.

For investors, the most credible corporate climate strategy is therefore not the one with the largest collection of supplier pledges. It is the one that connects targets to contracts, contracts to capital investment, and capital investment to independently measured emissions reductions.

References:

¹ Homroy, S., & Rauf, A. (2026). Green washing in supply chains? Journal of Corporate Finance, 103079. https://doi.org/10.1016/j.jcorpfin.2026.103079