How Does a Major Corporate Customer’s ESG Performance Drive the Supplier’s Green Innovation?

Abstract

In the current climate of intensifying global demands for sustainability, the influence of major corporate customers in driving environmental initiatives across supply chains has emerged as a pivotal focus of academic research and practical application. This study investigates how these influential customers can drive green innovation along their supply chains, which remains under-explored in the previous literature. The study focuses on critical indicators such as the green patent application to measure green innovation outcomes. Leveraging a panel dataset of paired Chinese listed firms from 2009 to 2022, we examine the impact of customers’ environmental, social, and governance (ESG) performance on suppliers’ green innovation activities. Our model is integrated with fixed effects for both industry and year. Our analysis reveals that customers with firm ESG commitments significantly enhance their suppliers’ green innovation outcomes, particularly when they possess greater bargaining power and advanced green innovation capabilities. Additionally, we identify pressure and collaboration as critical mechanisms through which these effects are realized. These findings extend the discourse on sustainable supply chain management by highlighting the crucial role of customer-driven ESG initiatives in fostering upstream innovation, offering valuable insights for scholars and practitioners.