ESG performance and stock market responses to geopolitical turmoil: evidence from the Russia-Ukraine war

In the wake of the 2015 Paris Agreement, an increasing number of stakeholders have called upon companies to demonstrate a greater level of ethical, environmental, and social responsibility. This movement aims to contribute positively to the planet and society as a whole, as well as achieving the minimum required financial returns. However, such practices and investments are being challenged by increased geopolitical risks, such as Russia's invasion of Ukraine. This is because political events can significantly impact the financial markets and responsible investing practices. In this paper, we analyze stock price reactions to the Ukraine-Russia conflict on a global scale, focusing on differentiating between companies by country, industrial sector, and ESG characteristics. Using an event study methodology on over 17,000 firms, the empirical analysis shows that, on average, the stock market reacted negatively in the days surrounding the event. However, distinct patterns of stock market reaction are evident, most of which were country- and sector-specific. Furthermore, the results suggest that ESG performance acts as a moderating factor: firms with higher sector-adjusted ESG scores exhibit less negative CARs.