Climate change and social factors (e.g., inequality) are increasingly seen as key factors of long-term economic performance, which puts Environmental, Social and Governance (ESG) front and center for business. ESG implementation may create a competitive advantage for the firm as it may attract customers from other firms producing the same product, which in turn may force these other firms to also implement ESG. Furthermore, companies are exposed to the risk of their suppliers and hence concerned not just about their own but also their suppliers’ ESG standards. Companies may choose to reduce potential risk by requiring suppliers to raise their ESG standards or switching away from suppliers with bad ESG-related performance.
There are very few studies on the impact of ESG on corporate network. Also, relative little is known about the role of corporate network in driving companies’ ESG performance and value outcomes. It is therefore interesting to investigate, for example, are adverse ESG shocks to a firm for subsequent improvements in ESG performance? More specifically, do companies wait with implementing better ESG policies until a controversy happens and do the adverse ESG events have knock-on effects along the supply chain? It is also important to know what types of firms and sectors are the key players for the propagation of ESG-related risk and commitments in the corporate network.
We aim to investigate how a firm’s ESG implementation propagates to its competitors, customers and suppliers, and how it affects the financial and operational performance of the firms. We further aim to investigate if the effects depend on the firms’ characteristics, type of product and the degree of product market competition. Using tools from network analysis will allow us to determine which companies can generate the most powerful “ripple effects” in terms of ESG performance. Such information would be valuable to regulators and ESG advocates, so they can direct their efforts in a way that maximizes overall improvement in ESG standards.
Project time
2019-2022
Funding
This project is entitled “Doing well by doing good? Sustainability and performance” and is financed by the Jan Wallander and Tom Hedelius foundation and the Tore Browaldh foundation.
