Customer Enterprises’ ESG Rating and Supplier Enterprises’ Green Innovation

Abstract

Taking all A-share listed companies in China from 2009 to 2022 as research samples, this paper examines the relationship between customer enterprises' environmental, social, and governance (ESG) rating and supplier enterprises' green innovation. The empirical results show that customer enterprises' ESG rating has a positive impact on supplier enterprises' green innovation. Reducing the amount of funds of supplier enterprises, encouraging supplier enterprises to increase innovation investment, and improving the managers' green cognition of supplier enterprises are the three mechanisms through which customer enterprises' ESG rating promotes supplier enterprises' green innovation. Supplier enterprises' market power will negatively moderate the positive relationship between customer enterprises' ESG rating and supplier enterprises' green innovation. Heterogeneity analysis reveals that the positive influence of customer ESG rating on suppliers' green innovation is stronger under two conditions. Firstly, it is more pronounced when customers face greater legitimacy pressure or engage in more substantive ESG practices. Secondly, the effect is also amplified when suppliers lack credibility or operate under stricter environmental regulations. Further research shows that customer enterprises' ESG rating is more effective in promoting supplier enterprises' green innovation when the uncertainty of ESG rating results is low, and that supplier enterprises' green innovation contributes not only to supplier enterprises' own ESG rating but also to supplier enterprises' total factor productivity. This paper highlights the spillover effects of ESG rating pressure from the perspective of supplier enterprises and provides empirical evidence and managerial implications for promoting corporate green innovation.

Keywords

customer enterprises / supplier enterprises / ESG rating / green innovation

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Higher Education Press