INSURANCE OR RETRENCHMENT? GEOPOLITICAL RISK AND ENVIRONMENTAL, SOCIAL, AND GOVERNANCE IN ASIA ACROSS PEACE REGIMES, DEVELOPMENT STATUS, AND REGULATORY QUALITY
Main Article Content
Abstract
This study investigates how country-level geopolitical risk (GPR) influences firms’ environmental, social, and governance (ESG) performance across 27 Asian economies over the period 2000–2024. The study addresses an important question in the ESG literature: (1) whether firms respond to geopolitical uncertainty by strengthening sustainability engagement as a form of strategic insurance and signalling, or (2) by retrenching ESG commitments under resource pressure. Using firm-level ESG data from Refinitiv and the Caldara–Iacoviello GPR index, we estimate firm fixed-effects models with extensive controls and further address endogeneity through an instrumental variable approach. The results show that, on average, higher GPR is associated with higher subsequent firm ESG scores, with the strongest response observed in the environmental pillar. However, this average effect conceals substantial institutional heterogeneity. The positive GPR-ESG association is stronger in high-peace, developing, and low-regulatory-quality settings, but weakens or turns negative in low-peace, developed, and high-regulatory-quality contexts. These findings indicate that ESG functions as a context dependent risk-management and signalling tool rather than a uniform response to geopolitical shocks. The study contributes by identifying peace regimes as a key boundary condition in the GPR-ESG relationship and offers implications for managers, investors, and policymakers seeking to strengthen corporate resilience under geopolitical uncertainty.
Article Details
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
Abakah, E. J. A., Adeabah, D., Tiwari, A. K., & Abdullah, M. (2023). Effect of Russia–Ukraine war sentiment on blockchain and FinTech stocks. International Review of Financial Analysis, 90, 102948. https://doi.org/10.1016/j.irfa.2023.102948
Abdullah, M., Abakah, E. J. A., Ullah, G. M. W., Tiwari, A. K., & Khan, I. (2023). Tail risk contagion across electricity markets in crisis periods. Energy Economics, 127, 107100. https://doi.org/10.1016/j.eneco.2023.107100
Abdullah, M., Tiwari, A., Hossain, M. R., & Abakah, E. (2024). Geopolitical risk and firm-level environmental, social and governance (ESG) performance. Journal of Environmental Management, 363, 121245. https://doi.org/10.1016/j.jenvman.2024.121245
Adams, R. B., Hermalin, B. E., & Weisbach, M. S. (2010). The role of boards of directors in corporate governance: A conceptual framework and survey. Journal of Economic Literature, 48(1), 58–107. https://doi.org/10.1257/jel.48.1.58
Adra, S., Gao, Y., Huang, J., & Yuan, J. (2023). Geopolitical risk and corporate payout policy. International Review of Financial Analysis, 87, 102613. https://doi.org/10.1016/ j.irfa.2023.102613
Agoraki, M. E. K., Kouretas, G. P., & Laopodis, N. T. (2022). Geopolitical risks, uncertainty, and stock market performance. Economic and Political Studies, 10(3), 253–265. https://doi.org/10.1080/20954816.2022.2095749
Ahmad, S., Mohti, W., Khan, M., Irfan, M., & Bhatti, O. K. (2024). Creating a bridge between ESG and firm’s financial performance in Asian emerging markets: Catalytic role of managerial ability and institutional quality. Journal of Economic and Administrative Sciences. Advance online publication. https://doi.org/10.1108/JEAS-01-2024-0004
Albuquerque, R., Koskinen, Y., & Zhang, C. (2019). Corporate social responsibility and firm risk: Theory and empirical evidence. Management Science, 65(10), 4451–4469. https://doi.org/10.1287/mnsc.2018.3043
Arayssi, M., Jizi, M., & Tabaja, H. H. (2020). The impact of board composition on the level of ESG disclosures in GCC countries. Sustainability Accounting, Management and Policy Journal, 11(1), 137–161. https://doi.org/10.1108/SAMPJ-05-2018-0136
Ariffin, M. S. M., WanHussin, W. N., Malak, S. S. D. A., & Kamaruzaman, I. S. (2024). Shareholders’ monitoring and online disclosures of minutes of shareholders’ meeting. Asian Academy of Management Journal, 29(1), 229–254. https://doi.org/ 10.21315/aamj2024.29.1.9
Bebchuk, L. A., & Weisbach, M. S. (2010). The state of corporate governance research. The Review of Financial Studies, 23(3), 939–961. https://doi.org/10.1093/rfs/hhp121
Borghesi, R., Chang, K., & Li, Y. (2019). Firm value in commonly uncertain times: The divergent effects of corporate governance and CSR. Applied Economics, 51(43), 4726–4741. https://doi.org/10.1080/00036846.2019.1597255
Borghesi, R., Houston, J. F., & Naranjo, A. (2014). Corporate socially responsible investments: CEO altruism, reputation, and shareholder interests. Journal of Corporate Finance, 26, 164–181. https://doi.org/10.1016/j.jcorpfin.2014.03.008
Bouri, E., Gabauer, D., Gupta, R., & Kinateder, H. (2023). Global geopolitical risk and inflation spillovers across European and North American economies. Research in International Business and Finance, 66, 102048. https://doi.org/10.1016/j.ribaf
.2023.102048
Broadstock, D. C., Chan, K., Cheng, L. T. W., & Wang, X. (2021). The role of ESG performance during times of financial crisis: Evidence from COVID-19 in China. Finance Research Letters, 38, 101716. https://doi.org/10.1016/j.frl.2020.101716
Brutger, R., & Guisinger, A. (2022). Labor market volatility, gender, and trade preferences. Journal of Experimental Political Science, 9(2), 189–202. https://doi.org/10.1017/ XPS.2021.9
Caldara, D., & Iacoviello, M. (2022). Measuring geopolitical risk. American Economic Review, 112(4), 1194–1225. https://doi.org/10.1257/aer.20191823
Campello, M., & Graham, J. R. (2013). Do stock prices influence corporate decisions? Evidence from the technology bubble. Journal of Financial Economics, 107(1), 89–
https://doi.org/10.1016/j.jfineco.2012.08.002
Chowdhury, M. A. F., Abdullah, M., Azad, M. A. K., Sulong, Z., & Islam, M. N. (2023). Environmental, social and governance (ESG) rating prediction using machine learning approaches. Annals of Operations Research, 1–25. https://doi.org/10.1007/ s10479-023-05633-7
Deng, P., Wen, J., He, W., Chen, Y. E., & Wang, Y. P. (2023). Capital market opening and ESG performance. Emerging Markets Finance and Trade, 59(13), 3866–3876. https:// doi.org/10.1080/1540496X.2022.2094761
DesJardine, M., Bansal, P., & Yang, Y. (2019). Bouncing back: Building resilience through social and environmental practices in the context of the 2008 global financial crisis. Journal of Management, 45(4), 1434–1460. https://doi.org/10.1177/014920631770885
DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147–160.
Disli, M., Yilmaz, M. K., & Mohamed, F. F. M. (2022). Board characteristics and sustainability performance: Empirical evidence from emerging markets. Sustainability Accounting, Management and Policy Journal, 13(4), 929–952. https://doi.org/10.1108/ SAMPJ-09-2020-0313
Duryea, S., Lam, D., & Levison, D. (2007). Effects of economic shocks on children’s employment and schooling in Brazil. Journal of Development Economics, 84(1), 188–214. https://doi.org/10.1016/j.jdeveco.2006.11.004
Dyck, A., Lins, K. V, Roth, L., & Wagner, H. F. (2019). Do institutional investors drive corporate social responsibility? International evidence. Journal of Financial Economics, 131(3), 693–714. https://doi.org/10.1016/j.jfineco.2018.08.013
El Ghoul, S., Guedhami, O., Wang, H., & Kwok, C. C. Y. (2016). Family control and corporate social responsibility. Journal of Banking & Finance, 73, 131–146. https://doi.org/ 10.1016/j.jbankfin.2016.08.008
Erzurumlu, Y., Gozgor, G., Lau, C. K., Soliman, A., & Turkkan, M. (2025). The effects of geopolitical and political risks on corporate ESG practices. Journal of Environmental Management, 386, 125747. https://doi.org/10.1016/j.jenvman.2025.125747
Fan, D., Zhou, Y., Yeung, A. C. L., Lo, C. K. Y., & Tang, C. (2022). Impact of the US–China trade war on the operating performance of US firms: The role of outsourcing and supply base complexity. Journal of Operations Management, 68(8), 928–962. https://doi.org/10.1002/joom.1225
Fang, M., Nie, H., & Shen, X. (2023). Can enterprise digitization improve ESG performance?
Economic Modelling, 118, 106101. https://doi.org/10.1016/j.econmod.2022.106101 Fatemi, A., Glaum, M., & Kaiser, S. (2018). ESG performance and firm value: The moderating
role of disclosure. Global Finance Journal, 38, 45–64. https://doi.org/10.1016/j.gfj
.2017.03.001
Fiorillo, P., Meles, A., Pellegrino, L. R., & Verdoliva, V. (2024). Geopolitical risk and stock price crash risk: The mitigating role of ESG performance. International Review of Financial Analysis, 91, 102958. https://doi.org/https://doi.org/10.1016/ j.irfa.2023.102958
He, X., Jing, Q., & Chen, H. (2023). The impact of environmental tax laws on heavy-polluting enterprise ESG performance: A stakeholder behavior perspective. Journal of Environmental Management, 344, 118578. https://doi.org/10.1016/j. jenvman.2023.118578
Ho, F. N., Wang, H. M. D., & Vitell, S. J. (2012). A global analysis of corporate social performance: The effects of cultural and geographic environments. Journal of Business Ethics, 107(4), 423–433. https://doi.org/10.1007/s10551-011-1047-y
Houston, J. F., & Shan, H. (2022). Corporate ESG profiles and banking relationships. The Review of Financial Studies, 35(7), 3373–3417. https://doi.org/10.1093/rfs/hhab125
Ilyas, M., Mian, R. U., & Suleman, M. T. (2022). Economic policy uncertainty and firm propensity to invest in corporate social responsibility. Management Decision, 60(12), 3232–3254. https://doi.org/10.1108/MD-06-2021-0746
Ioannou, I., & Serafeim, G. (2012). What drives corporate social performance? The role of nation-level institutions. Journal of International Business Studies, 43(9), 834–864. https://doi.org/10.1057/jibs.2012.26
Jahanger, A., Hossain, M. R., Awan, A., Adebayo, T. S., & Chishti, M. Z. (2023). Linking tourist’s footprint and environmental tragedy through transportation, globalization and energy choice in BIMSTEC region: Directions for a sustainable solution using novel GMM-PVAR approach. Journal of Environmental Management, 345, 118551. https://doi.org/10.1016/j.jenvman.2023.118551
Jiang, P., Feng, G., Wang, H., & Chang, C. (2024). CSR from different perspectives: The global ESG indexes updated. Corporate Social Responsibility and Environmental Management, 31(5), 4694–4714. https://doi.org/10.1002/csr.2814
Jiang, Y., Klein, T., Ren, Y., & Duong, D. (2024). Global geopolitical risk and corporate ESG performance. Journal of Environmental Management, 370, 122481. https://doi
.org/10.1016/j.jenvman.2024.122481
Kotcharin, S., & Maneenop, S. (2020). Geopolitical risk and shipping firms’ capital structure decisions in Belt and Road Initiative countries. International Journal of Logistics Research and Applications, 23, 544–560. https://doi.org/10.1080/13675567
.2020.1766003
Le, A., & Tran, T. (2021). Does geopolitical risk matter for corporate investment? Evidence from emerging countries in Asia. Journal of Multinational Financial Management. https://doi.org/10.1016/J.MULFIN.2021.100703
Lee, C.C., Zhang, J., Yu, C.H., & Fang, L. (2023). How does geopolitical risk affect corporate innovation? Evidence from China’s listed companies. Emerging Markets Finance and Trade, 59(7), 2217–2233. https://doi.org/10.1080/1540496X.2023.2170698
Li, M., Huang, M., Wang, D., & Li, X. (2023). Star CEOs and ESG performance in China: An integrated view of role identity and role constraints logics. Business Ethics, the Environment & Responsibility, 32(4), 1411–1428. https://doi.org/10.1111/beer.12579
Lins, K. V, Servaes, H., & Tamayo, A. (2017). Social capital, trust, and firm performance: The value of corporate social responsibility during the financial crisis. The Journal of Finance, 72(4), 1785–1824. https://doi.org/10.1111/jofi.12505
Liu, J., Xiong, X., Gao, Y., & Zhang, J. (2023). The impact of institutional investors on ESG: Evidence from China. Accounting & Finance, 63, 2801–2826. https://doi.org/10.1111/ acfi.13011
Liu, W., Li, X., Liu, C., Wang, M., & Liu, L. (2023). Resilience assessment of the cobalt supply chain in China under the impact of electric vehicles and geopolitical supply risks. Resources Policy, 80, 103183. https://doi.org/10.1016/j.resourpol.2022.103183
Maneenop, S., Pringpong, S., & Jaroenjitrkam, A. (2023). Geopolitical risk and firm value: Evidence from emerging markets. The North American Journal of Economics and Finance. https://doi.org/10.1016/j.najef.2023.101951
McGuinness, P. B., Vieito, J. P., & Wang, M. (2017). The role of board gender and foreign ownership in the CSR performance of Chinese listed firms. Journal of Corporate Finance, 42, 75–99. https://doi.org/10.1016/j.jcorpfin.2016.11.001
Meutia, I., Yaacob, Z., & Kartasari, S. F. (2023). Sustainability reporting and audit committee attributes: Evidence from banks in Indonesia. Asian Academy of Management Journal, 28(2). https://doi.org/10.21315/aamj2023.28.2.11
Nirino, N., Santoro, G., Miglietta, N., & Quaglia, R. (2021). Corporate controversies and company’s financial performance: Exploring the moderating role of ESG practices. Technological Forecasting and Social Change, 162, 120341. https://doi.org/10.1016/ j.techfore.2020.120341
Ortiz-de-Mandojana, N., & Bansal, P. (2016). The long-term benefits of organizational resilience through sustainable business practices. Strategic Management Journal, 37(8), 1615–1631. https://doi.org/10.1002/smj.2410
Phan, D. H. B., Tran, V. T., & Iyke, B. N. (2022). Geopolitical risk and bank stability. Finance Research Letters, 46, 102453. https://doi.org/10.1016/j.frl.2021.102453
Qin, M., Su, C. W., Umar, M., Lobonţ, O.-R., & Manta, A. G. (2023). Are climate and geopolitics the challenges to sustainable development? Novel evidence from the global supply chain. Economic Analysis and Policy, 77, 748–763. https://doi.org/10
.1016/j.eap.2023.01.002
Rajesh, R. (2023). Grey Markov models for predicting the social sustainability performances of firms. Social Indicators Research, 168(1), 297–351. https://doi.org/10.1007/s11205
-023-03132-7
Roscoe, S., Aktas, E., Petersen, K. J., Skipworth, H. D., Handfield, R. B., & Habib, F. (2022). Redesigning global supply chains during compounding geopolitical disruptions: The role of supply chain logics. International Journal of Operations & Production Management, 42(9), 1407–1434. https://doi.org/10.1108/IJOPM-12-2021-0777
Saharti, M., Chaudhry, S. M., Pekar, V., & Bajoori, E. (2024). Environmental, social and governance (ESG) performance of firms in the era of geopolitical conflicts. Journal of Environmental Management, 351, 119744. https://doi.org/10.1016/j
.jenvman.2023.119744
Song, L., & Zhou, Y. (2020). The COVID-19 pandemic and its impact on the global economy: What does it take to turn crisis into opportunity? China & World Economy, 28(4), 1–25. https://doi.org/10.1111/cwe.12349
Spence, M. (1973). Job Market Signalling. The Quarterly Journal of Economics, 87(3), 355–374. https://doi.org/10.2307/1882010
Sulong, Z., Abdullah, M., Abakah, E. J. A., Adeabah, D., & Asongu, S. (2024). Russia-Ukraine war and G7 debt markets: Evidence from public sentiment towards economic sanctions during the conflict. International Journal of Finance & Economics, 29(4), 4569–4589. https://doi.org/10.1002/ijfe.2887
Vural-Yavaş, Ç. (2021). Economic policy uncertainty, stakeholder engagement, and environmental, social, and governance practices: The moderating effect of competition. Corporate Social Responsibility and Environmental Management, 28(1), 82–102. https://doi.org/10.1002/csr.2034
Yu, Y., Guo, S., & Chang, X. (2022). Oil prices volatility and economic performance during COVID-19 and financial crises of 2007–2008. Resources Policy, 75, 102531. https://doi.org/10.1016/j.resourpol.2021.102531
Zanetti, F. (2019). Financial shocks, job destruction shocks, and labor market fluctuations. Macroeconomic Dynamics, 23(3), 1137–1165. https://doi.org/10.1017/ S1365100517000190