Eliminating environmental, social and governance (ESG) risks in a closed-loop supply chain with a non-profit organization

Abstract

Integrating environmental, social, and governance (ESG) considerations into closed-loop supply chains introduces complex challenges and therefore, makes it crucial to understand and mitigate ESG-related risks. This paper employs a game-theoretical model to examine how a closed-loop supply chain can mitigate ESG risks. The supply chain comprises a green manufacturer and a retailer, with the potential engagement of a recycling non-profit organization (NPO) and a quality assessment agency. We compare three operational mechanisms, i.e., (i) no remanufacturing, (ii) self-collection, and (iii) NPO-collection, from an ESG perspective. We further extend the model to examine the cases of mandatory information disclosure, a retailer collection scheme, and competing manufacturers. From an environmental perspective, remanufacturing helps reduce risks of resource inefficiency and environmental impact. Self-collection (resp. NPO-collection) performs better for low-pollution (resp. high-pollution) products. From a social perspective, high “local community engagement” may incur risks. Results show that only when the production cost is high and the information acquisition cost is small, it is wise for the manufacturer to engage with both the NPO and the community's quality assessment agency. From a governance perspective, we examine transparency-related risks and find that mandatory (resp. voluntary) disclosure is preferred when the production cost is high, while voluntary disclosure is preferred when the production cost is low. Our findings supplement the extant literature by extending the value of remanufacturing beyond traditional economic and environmental perspectives, explicitly addressing ESG risks and providing managerial implications for decision makers and policymakers to support the sustainable development of the closed-loop supply chain.

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ORCID for Xiaoyan Xu: orcid.org/0000-0003-4565-5986

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