Can AI adoption by focal firms curb its supply chain environmental violation?

Under growing pressures from climate change and ecological constraints, environmental sustainability is critical for development. Although firms are central to sustainability, over 90% of emissions originate in their supply chains, where environmental violations harms reputation and governance. This study draws on the knowledge spillover perspective to examine whether focal firms’ adoption of artificial intelligence (AI) reduces environmental violation risks across entire supply chain networks. Using a panel dataset of Chinese listed firms from 2008–2019,we find that focal firms’ AI adoption significantly inhibits environmental violations along the supply chain, and that this effect is stronger when supply chains are more concentrated and geographically proximate. By extending knowledge spillover theory to environmental governance, this study demonstrates how focal firms’ AI adoption and its spill-over effects shape environmental violations across supply chains. It also provides implications for managers and policymakers seeking to advance sustainable supply chain management.