Article Abstract
Research Summary
Can environmental, social, and governance (ESG) investors hold businesses accountable for their environmental impact? Extending institutional theory and analyzing a global sample of firms from 2006 to 2019, we argue that, in response to ESG investors' institutional pressures, firms may intensify pollution outsourcing to suppliers as a sophisticated form of corporate decoupling. We further theorize and find suggestive evidence that this effect is less salient and sometimes reversed when ESG investors can help firms access green technologies and when they have more direct purview of firms' suppliers. We employ investor-level acquisitions as quasi-exogenous shocks and additionally analyze a separate firm–supplier sample to support the hypotheses with largely consistent results.
Managerial Summary
Environmental, social, and governance (ESG) investors are increasingly expected to act as private regulators, using ownership stakes to steer companies toward sustainability. Yet, looking only at whether a focal firm cleans up its own operations can be misleading because it ignores what happens in the broader supply chain. Using global firm data from 2006 to 2019, we find that companies under strong ESG investor pressure generate lower direct emissions but may shift pollution to suppliers, leaving the combined emissions unchanged. We also provide suggestive evidence that this outsourcing is reduced and sometimes can become reduced when investors can help firms adopt green technologies and directly oversee supplier practices.
Strategic Management Journal, August 2026
ESG Investing's Blind Spot: The Supplier Tier
About the researcher
Zhengyu Li is a Senior Lecturer in Management at the University of Melbourne. His main research interests include ESG, corporate social responsibility (CSR), corporate governance, strategic leadership, innovation, and multinationals from emerging economies.
Dr. Li received his Ph.D. in Management from Tilburg University (the Netherlands), and he was a visiting scholar in strategy at the Ross School of Business, University of Michigan. His research has been published in leading academic outlets, such as Strategic Management Journal, Journal of Product and Innovation Management, Journal of Business Finance and Accounting, Journal of Business Research, and Academy of Management Proceedings, among others. His research projects have received competitive research grants from the National Natural Science Foundation of China and the Strategic Management Society (SMS). He is serving as a member of the Editorial Review Board of the Journal of Business Research.
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