ESSEC - Amundi Chair on Asset & Risk Management
"ESG and Value Chain"
June 28, 2023
Modern companies rely on long supply chains that may span multiple countries and involve numerous suppliers, making it difficult for companies to monitor and manage their operations effectively. As a result, supply chains can be a significant source of ESG (Environmental, Social, and Governance) risks for companies. A strand of academic literature looks at the impact of ESG issues on the supply chain of corporations. Environmental risks can arise from the use of unsustainable materials, poor waste management practices, or inadequate pollution control measures within the supply chain. Social risks may include the use of forced labor or child labor, poor working conditions, and violations of human rights. Governance risks can arise from inadequate oversight of suppliers, corruption, or non-compliance with regulations. Therefore, companies may face reputational damage, legal and financial penalties, and supply chain disruptions if they fail to manage ESG risks effectively. In addition, investors and consumers are increasingly demanding greater transparency and accountability regarding supply chain practices.
16.30 - 17.15: "ESG News Spillovers across the Value Chain“
by Guillaume COQUERET, EM Lyon
17.15 - 18.00: "Migration of Global Supply Chains: A Real Effect of Mandatory ESG Disclosure“
by Hai LU, Rotman School of Management, University of Toronto
The first paper presented by Guillaume Coqueret (EM Lyon) analyzes the impact of ESG news on firms’ stock returns as well as on their suppliers and clients returns. Indeed, ESG news on a firm can have an impact on the future sales or reputation of its suppliers and clients and thus on their returns. The authors document a significant impact of ESG shocks on firms’ stock return as well as on the return of suppliers and clients. Yet, although the impact on a firm’s return is immediate, the diffusion of the shocks takes more time on suppliers and clients.
A second paper presented by Hai Lu (U. of Toronto) analyzes the impact of mandatory ESG disclosure on firms’ global supply chain management. The authors argue that mandatory ESG disclosure may provide incentives for firms to evade or hide their ESG-related obligations by transferring the potential ESG-related risks to their suppliers, especially to those in jurisdictions with weaker ESG standards. This conjecture is supported by their empirical findings.
These two papers provide new evidence on the spillovers effects of ESG issues to the supply chain.