In recent years, Environmental, Social, and Governance (ESG) criteria have emerged as vital indicators shaping corporate strategy and sustainability worldwide. Yet, the majority of research investigating ESG’s impact remains narrowly focused on individual companies, exploring internal practices and outcomes while largely overlooking the broader systemic effects. A groundbreaking study published by Sun, Luo, Tao, and colleagues in Humanities and Social Sciences Communications disrupts this traditional perspective by charting the expansive influence of ESG performance across entire supply chains. Their research reveals that ESG initiatives set off a cascade of innovation within supply networks, but, intriguingly, this effect is not uniform—displaying a pronounced asymmetry between upstream suppliers and downstream customers.
The conceptual leap in this study lies in transcending the firm-centric lens to explore ESG’s ripple effects on interconnected businesses embedded within global supply chains. Unlike siloed analyses, this comprehensive approach captures complex interdependencies driven by globalization, digital technology, and evolving supply chain governance. It uncovers how ESG acts as a behavioral externality, shaping strategic decisions and innovation capacities beyond a firm’s own boundaries. Such systemic insights are crucial in an era defined by intricate and fragile supply networks where sustainability is no longer optional but imperative.
Dominance and power imbalances within supply chains have long been recognized, with buyer-driven models granting disproportionate influence to customer firms. These dominant buyers commonly leverage their position to secure advantageous prices and terms, fundamentally shaping supplier behavior. However, this new research challenges conventional wisdom by showing that dominant downstream firms also respond dynamically to supplier-led innovation, particularly when supportive ESG practices foster stable, long-term partnerships. This bidirectional influence complicates simplistic hierarchies and highlights the nuanced dance between supply chain actors as they co-evolve under ESG pressures.
Traditional studies have often isolated segments of supply chains, failing to differentiate the distinct roles and innovation drivers affecting upstream versus downstream firms. By analyzing data from Chinese A-share listed companies over a 15-year period, this project rigorously quantifies ESG’s differential impact, demonstrating that while downstream customer firms experience enhanced innovation capabilities as a direct result of upstream ESG improvements, upstream suppliers themselves do not reap comparable innovation benefits. This asymmetry is both surprising and critical, suggesting that current ESG frameworks may inadvertently privilege downstream innovation ecosystems.
The implications of this asymmetry highlight important policy and managerial considerations. Upstream suppliers, often constrained by compliance costs and limited institutional incentives, may remain passive despite stringent ESG demands. The study advocates for tailored institutional mechanisms—such as differentiated subsidies, ESG-linked financing, and tax incentives—to particularly uplift upstream manufacturers and service providers who form the foundational layers of global value chains. Simultaneously, enhancing digital and AI-driven ESG management is posited as a pivotal lever to transition suppliers from reactive compliance to proactive innovation generators.
Cooperative stability emerges as another key theme. The research underscores how sustained collaboration, joint innovation funds, and strategic alliances along supply chains enrich transparency, trust, and mutual value creation. These social and governance dimensions amplify the diffusion of ESG benefits downstream, reinforcing a virtuous cycle of innovation. Digital transformation and the integration of AI capabilities further accelerate this process by enabling real-time data sharing, predictive analytics, and process automation, enhancing both ESG compliance and creative output.
Technological innovation driven by ESG and supply chain dynamics is particularly relevant in sectors marked by asymmetrical innovation capabilities, such as the semiconductor industry. Here, the upstream dominance of countries like the United States in chip design contrasts with downstream concentrations of manufacturing and assembly in Taiwan, South Korea, and mainland China. This uneven landscape not only influences the flow of value and returns but also exemplifies how ESG-driven innovation strategies must account for geographic and industrial disparities when fostering global supply chain resilience.
Managers are encouraged to adopt differentiated ESG strategies aligned with their supply chain positioning. Middle-tier firms should leverage their bridge roles to promote ESG as a strategic asset, signaling innovation commitment to upstream and downstream partners alike. Downstream companies, leveraging their proximity to end consumers, are urged to convert ESG investments into tangible innovations—such as green product development, sustainable packaging, and social responsibility programs—that bolster consumer trust and market differentiation. Such nuanced deployments of ESG can transform it from an administrative mandate into a genuine innovation catalyst.
Importantly, this study also cautions against overly simplistic assumptions about ESG’s uniform effectiveness. The complex heterogeneity of firms’ life cycle stages, institutional environments, and industry factors profoundly shapes ESG’s innovation outcomes. Tailoring ESG frameworks dynamically to an enterprise’s strategic context and collaborative ecosystem is therefore essential to realize synergistic growth and sustainability benefits. One-size-fits-all ESG policies risk missing opportunities or exacerbating structural inequalities within supply chains.
Despite its innovative contributions, the study’s focus on Chinese listed firms reflects certain limitations. China’s distinct regulatory and market environment may influence the transferability of findings to other global contexts where ESG standards, enforcement, and investor priorities differ substantially. Future research would do well to integrate ESG systems from multiple countries and organizations to build more universally applicable models with comprehensive stakeholder coverage, including regulators, financiers, competitors, and community actors—not just direct supply chain partners.
Against this backdrop, the evolving role of digital technologies and AI cannot be overstated. By enabling granular ESG data collection, automated reporting, and advanced optimization algorithms, these tools help break down traditional barriers to supply chain transparency and encourage sustainable innovation in underperforming upstream segments. Firms and policymakers aiming to leverage ESG for supply chain transformation must therefore prioritize investments in digital infrastructure and AI capabilities, ensuring that ESG strategies are data-driven and innovation-focused.
Moreover, the complexity of supply chains—regarding length, tier number, and regional dispersion—likely modulates the ESG-innovation relationship. Longer, more intricate supply chains may experience attenuation or transformation of ESG effects, producing varied outcomes across nodes and geographies. Decomposing these influences, including the role of intermediary firms and cross-border institutional differences, is a promising avenue for deepening theoretical and practical understanding in this space.
This study’s revelations mark a significant step toward contextualizing ESG in real-world supply chain configurations. It encourages a systemic reevaluation of sustainability strategies by highlighting differentiated innovation effects and the conditions that facilitate or hinder ESG’s diffusion. By embracing a network perspective and emphasizing behavioral externalities among firms, it offers a robust framework for navigating the twin challenges of ecological responsibility and competitive advantage in contemporary markets.
The researchers’ data-driven approach harnessing extensive panel data enables high-resolution insights into evolving corporate conduct under ESG mandates. This approach sets a benchmark for future empirical investigations seeking to disentangle complex inter-organizational phenomena. As ESG continues to gain traction—fueling regulatory reforms, investor demands, and consumer awareness—this study acts as a clarion call to integrate supply chain realities into sustainability discourse and innovation strategy.
From a managerial standpoint, this research delivers actionable intelligence: fostering ESG as a catalyst for downstream innovation while applying targeted supports to upstream actors can unlock more balanced and resilient supply chains. Enhanced cooperation mechanisms, digital enablers, and customized incentive structures form the cornerstone of these efforts, supporting systemic transformation rather than piecemeal compliance. Firms that seize these insights will be better equipped to thrive in an increasingly ESG-conscious economy marked by rapid technological change and complex interdependencies.
In summation, the asymmetric impact of ESG on innovation within supply chains unearths hidden dynamics that conventional firm-level analyses fail to grasp. This paradigm shift reshapes how scholars, businesses, and policymakers should conceptualize and operationalize ESG, emphasizing network-level interactions, feedback loops, and differentiated roles. As the global business landscape evolves, incorporating these multifaceted supply chain perspectives will be essential to harness ESG’s full potential as a driver of sustainable, inclusive innovation.
Subject of Research: The study investigates how ESG (Environmental, Social, and Governance) performance influences corporate innovation through the lens of supply chain transmission, emphasizing the asymmetric effects on upstream suppliers versus downstream customers.
Article Title: The asymmetric influence of ESG performance on corporate innovation: understanding the role of supply chain transmission
Article References:
Sun, Y., Luo, D., Tao, L. et al. The asymmetric influence of ESG performance on corporate innovation: understanding the role of supply chain transmission. Humanit Soc Sci Commun 12, 1735 (2025). https://doi.org/10.1057/s41599-025-06005-1
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