Thursday 3 April

ESG and Geopolitics: Stock Returns in the Ukraine-Russia Conflict

Yuxin Zhou – PhD Student

Abstract:

Geopolitical events have emerged as critical drivers of financial market uncertainty. The recent Ukraine-Russia conflict, followed by an energy shortage, has had profound consequences on both financial and energy markets, emphasizing ESG as a corporate risk factor. This paper aims to explore the interplay between stock returns, geopolitical risk and the role of ESG during the Ukraine-Russia conflict. 

Employing an event study methodology complemented by a Difference-in-Difference (DiD) analysis, the study finds a positive ESG-return relationship during the first quarter of the conflict, which subsequently dissipates, reverting to neutrality. Furthermore, this paper extends the explanations of Pedersen et al. (2021)’s E-CAPM and finds that firms with superiority in particular ESG pillars have inherent properties of high profitability and, more importantly, enhanced resilience to corporate-level geopolitical and energy risks. These attributes have contributed to their superior performance compared to low-ESG firms during the geopolitical turmoil. This study highlights ESG’s critical role in enabling firms to better navigate the challenges posed by geopolitical and energy crises.

Registration, please contact robin@em-lyon.com

Room A2-116, Lyon campus