When the U.S. government leverages its $5 trillion annual purchasing power to encourage environmental responsibility, businesses respond. A new study from UC Berkeley’s Haas School of Business finds that firms vying for government contracts have reduced emissions, developed greener products, and taken measurable steps to combat climate change.

The study examined a decade of data from 2,700 companies across 350 U.S. counties. It found that firms seeking government contracts cut toxic emissions by up to 10,000 pounds annually per county and were 5% more likely to produce green technology patents. Companies also increased their climate disclosures, emphasizing commitments to sustainability and environmental innovation.

Setting expectations

“When the government sets procurement expectations, it’s not just talk,” the researchers explain. “Businesses are actually reducing their environmental impact, driving meaningful change.”

The government’s shift toward sustainability in purchasing began in the 1970s when environmental considerations were introduced alongside cost. The movement gained momentum in 2009 when President Obama required federal agencies to ensure that 95% of new contracts included environmentally friendly products and services. This federal policy influenced state and local governments and created strong incentives for companies to align their practices with sustainability goals.

To measure the impact of procurement policies, researchers adopted a novel approach. They studied firms in counties that experienced unexpected population boosts in the 2010 census, which led to increased government funding and contracting opportunities. Focusing on firms heavily engaged in government contracts, the team analyzed data from the Toxic Release Inventory and patent records, along with 16,000 observations spanning 2008 to 2017.

Clear benefits

The findings reveal clear environmental benefits tied to government procurement incentives:

• Emissions reductions: Greenhouse gas emissions decreased by up to 10,000 pounds annually per county.
• Innovation growth: Companies were 5% more likely to develop green patents, advancing technologies for environmentally friendly products.
• Increased transparency: Firms discussed climate commitments 24% more often during earnings calls, signaling a genuine focus on environmental progress.

This transparency carries weight. Research in The Journal of Finance shows that greater climate-related communication leads to significant increases in green jobs and patents within a year, underscoring the broader impact of such disclosures.

Meaningful change

Critics often question whether sustainability mandates drive real change or merely “greenwash” corporate behavior—making environmental claims without substance. This study offers strong evidence that procurement policies incentivize meaningful actions. Companies meeting sustainability requirements not only secure contracts but also reduce toxic emissions and invest in green innovation.

“People often doubt the government’s ability to create change,” the authors conclude. “Our findings show that procurement policies can play a vital role in combating climate change, proving that government actions can drive real environmental progress.”

By using its purchasing power strategically, the government demonstrates how targeted policies can align corporate interests with broader climate goals, achieving tangible benefits for both businesses and the planet.