Does ESG Uncertainty Disrupt Inventory Management? Evidence from an Emerging Market

Salem Hamad Aldawsari ()
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Salem Hamad Aldawsari: Department of Finance, College of Business Administration Hotat Bani Tamim, Prince Sattam bin Abdulaziz University, Al-Kharj 16278, Saudi Arabia

Sustainability, 2025, vol. 17, issue 21, 1-18

Abstract: The growing prominence of environmental, social, and governance (ESG) considerations has introduced new challenges for firms worldwide. While ESG practices are often framed as long-term drivers of competitiveness, uncertainty surrounding their regulatory requirements has created significant operational risks. The primary objective of this study is to examine how ESG uncertainty (ESG) affects inventory management in listed firms. The study analyzed data from Chinese A-share listed companies over the period 2010 to 2024. A series of econometric estimations, including fixed effect models, two-stage least squares (2SLS), and system GMM, were employed to ensure the robustness of the results and to address issues of heteroscedasticity, endogeneity, and dynamic effects. The empirical results consistently revealed that ESG uncertainty exerted a significant negative effect on inventory management. Firms facing greater unpredictability in ESG-related requirements experienced disruptions in supply chain coordination, difficulties in demand forecasting, and inefficiencies in inventory turnover. Beyond this, larger firms and those with higher environmental expenditures exhibited weaker inventory efficiency, while debt ratio, cost of capital, and firm performance were positively associated with improved inventory outcomes. For corporate managers, the study highlighted the importance of embedding sustainability considerations into inventory strategies and adopting flexible procurement systems, predictive analytics, and stronger governance mechanisms. The findings underscored the broader societal need for clarity and stability in ESG regulations. For this, reducing policy unpredictability could enable firms to align sustainability commitments with operational efficiency, thereby improving competitiveness while minimizing waste and resource misallocation. This study was among the first to empirically establish the link between ESG uncertainty and inventory management, bridging the gap between sustainability research and operational efficiency.

Keywords: ESG uncertainty; inventory management; system GMM; sustainability uncertainty (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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