ESG Shocks in Global Supply Chains

Abstract

We show that U.S. firms cut imports by 29.9% when their international suppliers experience environmental and social (E&S) incidents. These trade cuts are larger for publicly listed U.S. importers facing high E&S investor pressure and lead to cross-country supplier reallocation, suggesting that E&S preferences in capital markets can be privately costly but have real effects in far-flung economies. Larger trade cuts around the incident result in higher supplier E&S performance in subsequent years, and in the eventual resumption of trade. Our results highlight the role of investors in ensuring suppliers' E&S compliance along global supply chains.

Keywords: ESG, ESG risk management, global supply chains, investor pressure, reputation

JEL Classification: F14, F18, G34, G38