Suppliers’ pre-existing information environments and spillover effects of customer ESG disclosure mandates: evidence from China’s global supply chain networks

This study investigates whether and, if so, how the adoption of ESG reporting standards in foreign customer countries generates spillover effects along the global supply chain, and the extent to which these effects depends on suppliers' pre-existing ESG information environments. Our analysis exploits the trade linkages between China and 83 countries that underwent a staggered adoption of ESG disclosure mandates. We find that ESG-reporting firms in China improve their ESG performance after their customer countries mandate ESG reporting standards. This improvement is more pronounced when customer countries impose stronger ESG pressure on suppliers and when suppliers operate in more transparent peer environments, consistent with customers' enhanced monitoring of suppliers. In addition, the effects are stronger when there is a common set of ESG reporting standards between China and her customer countries. We further find that ESG-reporting firms demonstrate improvements in key sustainability metrics, including increased green projects, fewer workplace accidents, and enhanced gender diversity within their boardrooms. Overall, our study provides novel evidence on the interplay between downstream suppliers' information environments and upstream customers' reporting mandates in determining supplier firms' ESG performance.