State-led supply chains and ESG outcomes: evidence from China’s industrial policy

We examine how China’s Supply Chain Leader policy influences corporate ESG performance through spillover effects beyond its primary economic objectives. Using a staggered difference-in-differences design with 33,913 firm-year observations (2012–2022), we find the policy significantly enhances ESG performance, with effects strengthening over time. Through the institutional spillover pathway, firms strategically manage legitimacy portfolios: those with strong pre-existing legitimacy resources show weaker policy responses due to strategic substitution, while companies facing supply chain challenges show stronger responses, and established market monitoring systems reduce policy effects through legitimacy substitution. Through the technological spillover pathway, supply chain governance builds green innovation capabilities that transfer to ESG domains. The policy effects are stronger among private firms and municipal SOEs and in regions with better institutional development. These findings provide novel insights for emerging market policymakers seeking to promote corporate sustainability through governance interventions.