Does ESG decoupling reduce customer stability? Evidence from China

Abstract

This paper examines the influence of corporate environmental, social, and governance (ESG) decoupling on customer stability. Using a sample of Chinese listed firms, we discover a significantly negative nexus between corporate ESG decoupling and customer stability. Mechanism tests reveal that ESG decoupling reduces customer stability by damaging corporate reputation and increasing information asymmetry. Cross-sectional analyses demonstrate that ESG decoupling’s adverse influence on customer stability is more prominent in state-owned companies, non-high-tech firms, and firms with fiercer industry competition. Our results show that customers, as corporate primary stakeholders, punish suppliers’ ESG decoupling behaviour. This paper enriches the emerging literature on the consequences of ESG decoupling. Meanwhile, our findings offer implications for firms to maintain supply chain security and stability.