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The role of ESG in enhancing firm resilience to geopolitical risks: an Eastern European perspective

Geopolitical risk (GPR) presents a profound challenge to firms, particularly in regions with persistent political instability. In Eastern Europe, where conflicts like the Russia–Ukraine war heighten uncertainty, firms face immediate financial threats and long-term strategic vulnerabilities. This stu...

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Main Authors: Mohammad Reyad, Hossain, Ayesha, Momtaj, Iqbal, Mohammed Masum, Zariyawati, Mohd Ashhari
Format: Article
Published: John Wiley and Sons 2024
Online Access:http://psasir.upm.edu.my/id/eprint/114975/
https://onlinelibrary.wiley.com/doi/10.1002/bsd2.70027
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spelling my.upm.eprints.1149752025-02-13T04:50:00Z http://psasir.upm.edu.my/id/eprint/114975/ The role of ESG in enhancing firm resilience to geopolitical risks: an Eastern European perspective Mohammad Reyad, Hossain Ayesha, Momtaj Iqbal, Mohammed Masum Zariyawati, Mohd Ashhari Geopolitical risk (GPR) presents a profound challenge to firms, particularly in regions with persistent political instability. In Eastern Europe, where conflicts like the Russia–Ukraine war heighten uncertainty, firms face immediate financial threats and long-term strategic vulnerabilities. This study examines the impact of GPR on firm performance, focusing on the moderating role of environmental, social, and governance (ESG) practices as a resilience mechanism. Using a comprehensive dataset of 1360 publicly listed firms across Poland, Russia, and Ukraine from 2014 to 2023, the analysis employs a base panel data regression model, followed by a two-step generalized method of moments (GMM) approach to account for endogeneity and ensure robustness. The findings reveal a significant negative relationship between GPR and firm performance, measured by return on assets (ROA). Firms exposed to higher geopolitical risks exhibit weaker profitability. However, firms with stronger ESG performance demonstrate greater resilience, as the GMM results show that ESG engagement moderates the adverse effects of GPR on profitability. This suggests that ESG initiatives enhance adaptive capacity in volatile geopolitical environments. In terms of policy implications, ESG should be promoted as a key strategy for firms operating in politically unstable regions. Governments and regulatory bodies may consider mandatory ESG disclosures and incentivizing sustainability practices to help firms mitigate external risks, improve financial resilience, and attract stable investment. Aligning corporate strategies with global ESG standards is essential to ensuring business sustainability amid ongoing geopolitical threats. John Wiley and Sons 2024-12 Article PeerReviewed Mohammad Reyad, Hossain and Ayesha, Momtaj and Iqbal, Mohammed Masum and Zariyawati, Mohd Ashhari (2024) The role of ESG in enhancing firm resilience to geopolitical risks: an Eastern European perspective. Business Strategy and Development, 7 (4). art. no. e70027. ISSN 2572-3170 https://onlinelibrary.wiley.com/doi/10.1002/bsd2.70027 10.1002/bsd2.70027
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
description Geopolitical risk (GPR) presents a profound challenge to firms, particularly in regions with persistent political instability. In Eastern Europe, where conflicts like the Russia–Ukraine war heighten uncertainty, firms face immediate financial threats and long-term strategic vulnerabilities. This study examines the impact of GPR on firm performance, focusing on the moderating role of environmental, social, and governance (ESG) practices as a resilience mechanism. Using a comprehensive dataset of 1360 publicly listed firms across Poland, Russia, and Ukraine from 2014 to 2023, the analysis employs a base panel data regression model, followed by a two-step generalized method of moments (GMM) approach to account for endogeneity and ensure robustness. The findings reveal a significant negative relationship between GPR and firm performance, measured by return on assets (ROA). Firms exposed to higher geopolitical risks exhibit weaker profitability. However, firms with stronger ESG performance demonstrate greater resilience, as the GMM results show that ESG engagement moderates the adverse effects of GPR on profitability. This suggests that ESG initiatives enhance adaptive capacity in volatile geopolitical environments. In terms of policy implications, ESG should be promoted as a key strategy for firms operating in politically unstable regions. Governments and regulatory bodies may consider mandatory ESG disclosures and incentivizing sustainability practices to help firms mitigate external risks, improve financial resilience, and attract stable investment. Aligning corporate strategies with global ESG standards is essential to ensuring business sustainability amid ongoing geopolitical threats.
format Article
author Mohammad Reyad, Hossain
Ayesha, Momtaj
Iqbal, Mohammed Masum
Zariyawati, Mohd Ashhari
spellingShingle Mohammad Reyad, Hossain
Ayesha, Momtaj
Iqbal, Mohammed Masum
Zariyawati, Mohd Ashhari
The role of ESG in enhancing firm resilience to geopolitical risks: an Eastern European perspective
author_facet Mohammad Reyad, Hossain
Ayesha, Momtaj
Iqbal, Mohammed Masum
Zariyawati, Mohd Ashhari
author_sort Mohammad Reyad, Hossain
title The role of ESG in enhancing firm resilience to geopolitical risks: an Eastern European perspective
title_short The role of ESG in enhancing firm resilience to geopolitical risks: an Eastern European perspective
title_full The role of ESG in enhancing firm resilience to geopolitical risks: an Eastern European perspective
title_fullStr The role of ESG in enhancing firm resilience to geopolitical risks: an Eastern European perspective
title_full_unstemmed The role of ESG in enhancing firm resilience to geopolitical risks: an Eastern European perspective
title_sort role of esg in enhancing firm resilience to geopolitical risks: an eastern european perspective
publisher John Wiley and Sons
publishDate 2024
url http://psasir.upm.edu.my/id/eprint/114975/
https://onlinelibrary.wiley.com/doi/10.1002/bsd2.70027
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score 13.244413

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