Does Withdrawal from/Remaining in an Aggressor Country Affect Companies’ ESG Ratings? Case Study of the Russia–Ukraine War

Does remaining in an aggressor country damage a company's ESG rating?

Marius Sorin Dincă, Cosmin-Dănuț Vezeteu, and Dragoș Dincă examine whether Western firms that left Russia after its 2022 invasion saw different ESG outcomes than those that stayed in Does withdrawal from/remaining in an aggressor country affect companies' ESG ratings? Case study of the Russia-Ukraine war.

They apply a panel regression to ESG and Social scores for a sample of companies operating in Russia before the war and show that:

• One year into the war, ESG rating agencies have not penalised companies for staying in Russia. The anticipated hit to ESG performance did not materialise, at least in the short term.
• Unchanged ESG scores do not mean no risk or controversy related to armed conflicts, as they do not integrate geopolitical exposure into the assessment of companies' risks and impacts.
• To account for these risks, ESG rating agencies and regulators need to rethink their models or create new ones to integrate firms' social and political stances into ESG evaluations.
• The authors caution these results are preliminary, as the war is still ongoing and ESG impacts might take more time to be properly integrated into ESG ratings.

For investors, this study is a wake-up call to conduct their own due diligence on companies' responses to geopolitical aggression rather than relying on ESG rating agencies. The research however only captures roughly the first year of the Russia-Ukraine war (2022–2023). The authors caution ESG ratings often update slowly, so it may be too early to see long-term effects. The analysis also focuses on broad ESG scores: more granular impacts (such as specific controversies or stakeholder backlash) might not be reflected in these results.