How does customer climate risk affect suppliers’ ESG performance? Evidence from Chinese supply chains

Frequent extreme climate events have heightened supply chain vulnerabilities, positioning climate risk as a critical factor in corporate sustainability. Using data on Chinese A-share listed firms and their supply chain partners from 2009 to 2023, this study investigates whether customer climate risk shapes suppliers’ environmental, social, and governance (ESG) performance. We find that higher customer climate risk significantly improves suppliers’ ESG performance, primarily through risk linkage and incentive synergy mechanisms. The effect is stronger when suppliers exhibit higher dependence on customer firms or when the two parties differ in ownership structure. Moreover, we identify asymmetries in both direction and intensity: customer-to-supplier spillovers are stronger than reverse spillovers, and the effect intensifies when customers’ climate risk exposure exceeds that of suppliers. Further evidence shows that customer climate risk not only enhances supplier ESG scores but also contributes to reduced carbon emissions and improved carbon efficiency. These findings extend the literature on climate risk transmission by uncovering its governance spillovers within supply chains, and provide implications for lead firms and regulators aiming to strengthen supply chain resilience and foster sustainable development.