INSURANCE OR RETRENCHMENT? GEOPOLITICAL RISK AND ENVIRONMENTAL, SOCIAL, AND GOVERNANCE IN ASIA ACROSS PEACE REGIMES, DEVELOPMENT STATUS, AND REGULATORY QUALITY

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.