ESG Performance and Stock Market Responses to Geopolitical Turmoil: Evidence from the Russia-Ukraine War

Since the Paris Agreement of 2015, firms have been asked to enhance their commitment to ethical, environmental, and social responsibility by many different stakeholders. This movement seeks, alongside minimum required financial returns, positive contributions to the planet and society as a whole. However, these types of practices and investments are threatened by increased geopolitical risks, such as the invasion of Ukraine by Russia, given the interconnectedness between political events and responsible investing. In this paper, we analyze a large worldwide cross-section of stock price reactions to the Ukraine-Russia conflict, specifically differentiating companies by country, industry, and ESG characteristics. By employing an event study methodology approach on more than 17 thousand firms, the empirical analysis unveils, on average, a negative stock market reaction in the days around the event. Nonetheless, different patterns of stock market response are identified, most of which are country-sector specific. We also demonstrate that ESG performance seems to be a moderating factor, as firms with higher industry-adjusted ESG scores obtain less negative CARs.