Supply chain sustainability is becoming increasingly crucial to buying firms. Despite its importance in achieving their own sustainability targets, firms struggle to diffuse sustainability among their suppliers. Although previous research concludes that incentivization is the most effective in improving supplier sustainability, firms face high monitoring costs or opportunism risks when managing sustainability in multi-tier supply chains due to information asymmetry. In response, practitioners develop a novel approach to improve supplier sustainability, eliciting the importance of signaling effects in supplier sustainability management (SSM). Using a grounded research approach based on 40 semi-structured interviews, we explore the emerging SSM approach in the transport sector, which is based on sourcing standalone sustainability attributes—such as low carbon intensity—detached from the physical supply chain. We find that although information asymmetry is reduced, signaling effects of the sustainability attribute influence the firm's willingness to invest in it. Further, we find that firms operating in complex supply chains show a stronger willingness to source standalone sustainability attributes. Our results elicit the importance of signaling effects in supplier management approaches and propose a novel SSM approach to the multi-tier supply chain management literature.
