Suppliers’ ESG and Buyer Firm’s Innovation: Evidence from Chinese Listed Firms

Purpose - This study examines how suppliers’ ESG efforts influence buyer firms’ innovation performance, providing new insights into the upstream-downstream dynamics in supply chain ESG research. Design/methodology/approach - Using a matched panel dataset of supplier–buyer pairs from the 591 Chinese listed firms over the period 2009–2022, we construct a weighted ESG score of suppliers based on purchase proportions and examine its impact on buyer firm innovation. We employ multiple econometric approaches, including fixed-effects regressions, instrumental variable analysis, and extensive robustness checks. We further conduct moderating analyses to access how geographical proximity and digital transformation shape the ESG–innovation relationship. Findings - The results show that suppliers with higher ESG ratings significantly enhance buyer firms’ innovation performance. This positive effect is stronger when supply chain partners are geographically proximate and when buyer firms exhibit higher levels of digital transformation, confirming the moderating roles of geographical proximity and digital transformation. Research implications or Originality - This study advances ESG and supply chain literature by shifting focus to the upstream-to-downstream ESG transmission. It emphasizes the dual perspective of ESG coordination across the supply chain and provides actionable insights for executives and policy advisors aiming to foster innovation via responsible sourcing.