Vendor sustainability performance and corporate customers' supplier selection

Abstract This study investigates the impact of potential suppliers' sustainability performance (measured by environmental, social, and governance performance) on customer firms' supplier selection decisions. Our findings suggest that potential suppliers (vendors) with better sustainability performance are more likely to be selected as actual suppliers. Moreover, we find that customer firms with better sustainability performance, those operating in competitive industries, and state‐owned customer firms are more inclined to opt for sustainable suppliers. Furthermore, our analyses indicate that the positive influence of vendors' sustainability performance on the likelihood of being selected is more significant for vendors who hold non‐leading industrial positions or face high uncertainty. In addition, by focusing on actual customer‐supplier relationships, we find that customer firms benefit from collaborating with more sustainable suppliers. Overall, this study provides valuable insights into the role of corporate sustainability in supply chain management.