(Picture source: Pixabay)

(Correspondent: Zhong Yiming) Recently, the paper “ESG Spillover, Supply Chain Transmission, and Corporate Green Innovation” co-authored by Professor Yan Bing, Ph. D. candidate Cheng Min and Associate Professor Wang Naihe of our school has been published in the top journal of economics, Economic Research Journal, in the 7th issue of 2024.

Globally, issues such as climate change, social inequality, and governance failures are increasingly threatening economic stability and sustainable development. As the fundamental units of economic activity, companies’ sustainable supply chain management is crucial in addressing these global challenges. ESG elements (Environmental, Social, and Governance), have become key indicators for assessing corporate social responsibility and long-term development potential. With a growing understanding of ESG, companies are increasingly integrating these standards into their supply chain management to enhance competitive advantage, stabilize their supply chain foundation, and improve its robustness and resilience. Particularly in China, the government’s carbon peak and carbon neutrality goals have heightened the urgency for companies to adopt green actions in supply chain management, prompting them to focus more on environmental risk prevention and control.

Despite the numerous policies implemented by the Chinese government to promote the construction of green supply chains, this field is still in its early stages of development. With the upgrading of consumption and the growing demand for sustainable products, the market is compelling downstream segments of the supply chain to raise standards for environmentally friendly and green products. This shift in demand is driving upstream enterprises to transition to environmentally friendly production methods, creating a positive feedback loop that propels the entire industry toward green and sustainable development.

This paper, based on 2010-2021 enterprise-customer matching data from listed companies in China’s A-share market, delves into the transmission effects of ESG standards within the supply chain and their impact on corporate green innovation. We find that improvements in downstream enterprises’ ESG performance significantly incentivize midstream enterprises to adopt green innovation measures. This incentivizing effect is primarily realized through strengthening the midstream enterprises’ green awareness, increasing the supply of commercial credit, and sharing green production knowledge. This paper also reveals that under specific conditions, such as when companies rely more on major customers and have consistent equity characteristics, consensus on ESG and green goals is more easily achieved, thereby more effectively promoting green innovation. Additionally, in high environmental uncertainty situations, companies are more inclined to adopt “opportunity-oriented” strategies to accelerate green innovation. However, this paper also identifies the asymmetry in green spillover effects, particularly when downstream customers also play the role of upstream suppliers. Issues like “supply-demand coordination costs” and “supply-demand relationship balance” may hinder the process of leveraging ESG advantages to promote midstream enterprises’ green innovation.

This paper offers several key contributions to the existing body of knowledge in supply chain management. First, we expand the scope of ESG research from a supply chain perspective, identifying the green transmission effect of ESG along the supply chain, thus enriching the research on supply chain spillover effects. Second, we uncover the asymmetry of spillover effects and the counterbalancing role of dual identities, providing new perspectives and guidance for understanding and managing the green transmission effects of ESG in the supply chain. Finally, this paper innovatively demonstrates the positive consequences of customer ESG advantages in driving green innovation, deepening the research on ESG enabling sustainable development in the supply chain.

This paper confirms that downstream enterprises’ ESG advantages can positively impact carbon reduction and carbon performance by promoting midstream enterprises’ green innovation activities, offering a new perspective for evaluating the actual effects of green innovation. With the rising trend of carbon emission prices in China, downstream enterprises, through their outstanding ESG performance, can incentivize more midstream enterprises and supply chain partners to engage in green innovation, contributing to the fight against climate change and the achievement of sustainable development goals.

Founded in 1955, Economic Research Journal is a national-level comprehensive journal of economic theories. It is sponsored by Institute of Economics of CASS and is in the charge of Chinese Academy of Social Science. It is widely recognized as one of the top journals of economics by universities and research institutions in China.