BlueSky Thinking Summary

In a world that is rapidly becoming more considerate of the environment, societal impacts, and governance practices, Aaron Yoon from Kellogg School studies the financial implications of ESG risks residing in corporate supply chains.

As noted in the research, it is found that there is a high correlation between the negative ESG incidents among the suppliers and the lower stock returns for their clients in the succeeding years.

As such, transparency in the supply-chain ESG practices is most germane to achieving excess returns by investors.

Yoon indicates that though the major predicaments facing the investors are issues related to data gathering and compliance concerns, investors must recognize the importance of incorporating supply-chain ESG metrics as a vital way to improve the performance of their portfolios.

Ultimately, the research recommends that regulatory bodies—like the SEC—drive improved supply chain ESG disclosures.

This could transform the way companies handle risk and even open up beforehand hidden opportunities to investors.

ESG investing experienced multi-year growth, but it is under increased political scrutiny lately.

The work by Yoon, however, still shows its relevance and possibility of financial gains for the informed investor.