Unravelling the carbon emissions compliance in sustainable supply chains: The impacts of carbon audit cooperation

As one of the 17 Sustainable Development Goals, reducing carbon emissions is crucial to combat climate change. It has also prompted companies to comply with emission regulations and evaluate the environmental impacts of their supply chains. Yet, news and reports occasionally highlight industrial instances of noncompliance. In particular, supplier's noncompliance is often mistakenly attributed to its downstream manufacturers. Due to this misconception, manufacturers might conduct audits to protect their reputation and sales. Moreover, because a supplier may provide components to multiple competing manufacturers, they may collaborate to share audit findings regarding the common supplier's compliance with carbon emissions regulations. However, studies do not reveal how this audit cooperation affects stakeholder interests. Here, we introduce a stylised model to examine the effects of carbon audit cooperation on the environment, competing manufacturers, and their supplier. We identify two main effects: the free-riding and amplifying effects. The former benefits the supplier but harms the environment and competing manufacturers, while the latter presents the opposite effect. The net impact depends on the balance between these two effects, which challenges conventional beliefs about carbon emissions compliance and highlights the importance of sustainability in the industry. Finally, we explore various extensions to validate the robustness of our findings.