<p>Studies have highlighted the importance of environmental, social, and governance (ESG) factors and their impact on business performance. However, the specific contribution of ESG performance to the innovation capabilities of partner firms in both the upstream and downstream sectors of the supply chain, as well as the mechanisms of transmission along the supply chain, remain underexplored. This study examines how ESG performance influences the innovation capabilities of downstream client enterprises and upstream supplier firms. Using data from A-share listed companies in China from 2007 to 2022, this study employs a two-way fixed effects model for empirical analysis. The findings indicate that while superior ESG performance significantly enhances the innovation capabilities of downstream client enterprises, the effect on upstream supplier firms is relatively insignificant. This study further investigates the mechanisms underlying this asymmetric influence. The analysis shows that ESG performance affects the innovation capabilities of supply chain partners, primarily through the stability of supply chain cooperation and the degree of artificial intelligence integration within firms. Moreover, the impact on upstream and downstream firms’ innovation capabilities is demonstrably asymmetric. These results suggest that companies should strengthen the integration of ESG strategies into supply chain management and that policymakers should consider the heterogeneous effects of ESG performance on innovation across different positions in the supply chain.</p>