Contagion of a buyer’s ESG emphasis to its suppliers

Firms’ environmental, social, and governance (ESG) emphasis is increasingly important. Building on the theory of supply chain contagion, this work addresses how a large buyer can increase the ESG emphasis of its supply base (tier-1 suppliers), how the structure of the supply base moderates the relationship between a buyer’s ESG emphasis and that of its supply base, and how the buyer’s ESG emphasis influences its supply base’s financial performance via the supply base’s ESG emphasis. Hypotheses are tested using longitudinal data from 341 S&P 500 buyers and their respective supply bases over an 8-year period. The findings demonstrate that buyer ESG emphasis is positively related to its supply base’s ESG emphasis, with supply base interconnectedness positively moderating the relationship and supply base industrial diversity negatively moderating it. The findings also demonstrate the mediating role of a buyer’s supply base’s ESG emphasis. These results advance understanding of upstream ESG diffusion and how power asymmetries in supply chains shape imitation, with effectiveness depending on supply base structure and diversity. Implications for theory and practice are discussed.