Multinational enterprises (MNEs) face increasing scrutiny over the environmental, social, and governance (ESG) practices within their supply chains, particularly as they extend across diverse geographies and regulatory environments. A new study co-authored by researchers at Bayes Business School has found that these risks can be significantly mitigated when MNEs cultivate “small-world” supply network structures. These networks—characterised by dense local clustering and short global path lengths—offer firms a way to maintain the benefits of global supply chains while reducing their exposure to supplier-induced ESG controversies.
Globalising supply chains has long been a strategic move for MNEs, offering access to lower labour costs, more flexible manufacturing bases, and proximity to emerging markets. Additionally, such international dispersion can accelerate innovation by enabling firms to draw on a wide variety of skills, technologies, and cultural perspectives. However, these advantages come with substantial challenges, particularly when suppliers operate in jurisdictions with weaker governance structures or contrasting ethical norms. ESG issues such as environmental degradation, bribery, forced or child labour, and hazardous working conditions may originate in the supplier network, yet are frequently attributed to the MNE itself in the eyes of stakeholders.
This blurring of responsibility can cause severe reputational damage. Activists, investors, regulators, and the media increasingly expect MNEs to ensure the ethical conduct of their entire supply chain, not just their immediate partners. As a result, even a single misstep by a distant supplier can trigger widespread public backlash, financial penalties, or divestment campaigns. It is therefore imperative that firms develop more robust mechanisms to monitor and influence supplier behaviour—something traditional methods such as audits, contracts, and certifications struggle to achieve efficiently at scale.
To examine how the structure of global supply chains influences exposure to ESG controversies, the researchers analysed a comprehensive dataset covering 417 Fortune 500 companies over a decade, from 2010 to 2019. Drawing on multiple data sources—FactSet Supply Chain Relationships, Refinitiv ESG, Refinitiv Eikon, and RepRisk—they compiled 3,033 firm-year observations. The team evaluated the severity, spread, and novelty of ESG incidents. It correlated these with the geographical distribution of suppliers to develop an empirical understanding of how spatial complexity impacts sustainability performance.
The findings revealed a clear and statistically significant relationship: the greater the global dispersion of a firm’s supply network, the more likely it is to face supplier-induced ESG controversies. This correlation is attributed to the difficulties of sharing information, coordinating behaviour, and enforcing standards across vast and fragmented networks. When suppliers are scattered across multiple continents, cultural and regulatory misalignments become more pronounced, and the MNE’s ability to oversee operations and ensure ethical compliance is diminished.
However, the research also identified a promising solution. Firms that maintain “small-world” supply chain networks—those with high levels of internal connectivity and short relational distances between actors—are significantly better positioned to manage ESG risk. These networks enable faster information flow and foster informal peer monitoring, which can be more effective than top-down enforcement. Using metrics such as local clustering coefficients and average path lengths, the researchers demonstrated that small-worldness weakens the link between geographical dispersion and controversy frequency.
Dr Byung-Gak Son, Reader in Supply Chain Management at Bayes and co-author of the study, emphasised the strategic implications of these findings. “Our research suggests that while global supply chains offer many benefits, excessive dispersion undermines the ethical oversight of suppliers. Small-world networks, on the other hand, provide a naturally emergent form of governance through which suppliers monitor each other’s conduct. By encouraging suppliers to build direct relationships with each other or selecting partners already embedded in well-connected networks, MNEs can build resilience and integrity into their operations.”
Ultimately, the study advances our understanding of how supply chain architecture influences sustainability outcomes. It encourages MNEs to move beyond a purely transactional view of supplier relationships and to consider the structural dynamics of their networks as a whole. As global supply chains grow ever more complex, it will become increasingly vital for firms to design their networks not only for cost and efficiency but also for transparency, accountability, and ethical resilience. In this context, the concept of small-world networks offers a compelling and evidence-based strategy for navigating the ESG challenges of an interconnected world.
More information: Sangho Chae et al, Small worlds within global supply chains: implications for multinational enterprises’ environmental, social, and governance controversies, Journal of International Business Studies. DOI: 10.1057/s41267-025-00796-w
Journal information: Journal of International Business Studies Provided by City St George’s, University of London