Geopolitical Risk and Corporate ESG Performance: Evidence from China

Yicheng Kuai and Huixin Wang

Emerging Markets Finance and Trade, 2025, vol. 61, issue 4, 1010-1029

Abstract: This study investigates the impact of geopolitical risk (GPR) on corporate ESG performance. Using a large sample of A-share listed firms in China from 2009 to 2020, we find that firms tend to perform better in ESG practice when faced with high GPR. Analyzing the mechanisms, we find that firms engage in ESG more actively during uncertain periods to hedge risk and gain reputation. In addition, we find that the positive impact of GPR on ESG is more prominent for state-owned firms, heavily polluting firms, firms with managers holding strong environmental awareness, and firms located in highly foreign-trade-dependent areas. Finally, we find that corporate ESG practice can alleviate the adverse effects of GPR on a firm’s risk and reputation, and also enhance the interests of relevant stakeholders, thereby affirming the results of the mechanism analysis and the propositions in the stakeholder theory. Our results are robust to alternative GPR and ESG measures and different estimation methods and samples after correcting for endogeneity using an IV approach. This study highlights the value of ESG practice during uncertain periods.

Date: 2025
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DOI: 10.1080/1540496X.2024.2404176

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