ESG and Geopolitical Shocks: Evidence from the Russia–Ukraine War

Abstract

This study examines whether European companies with higher ESG ratings are more resilient to geopolitical shocks. We analyze stock price reactions of large European firms in the Euro Stoxx 50 index to the breakout of the Russia–Ukraine war. Portfolios are constructed based on overall ESG scores and individual ESG pillars. The results of event study analysis reveal only limited differences in stock price performance between high- and low-ESG portfolios. While high-ESG firms experience relatively smaller immediate declines, these effects are not persistent. A more nuanced pattern emerges at the pillar level: high-rated Social, Governance, and Controversy portfolios exhibit positive abnormal returns at the event onset, whereas low-rated portfolios show a pronounced decline in cumulative returns. The findings suggest that market reactions to the examined geopolitical shock are primarily driven by macroeconomic and geopolitical factors. ESG metrics should, in those circumstances, be complemented by broader risk measures.