Geopolitical Risk and Environmental, Social, and Governance (ESG) practices of listed companies in Vietnam

Abstract

The intensifying geopolitical risk (GPR) across major countries has raised concerns about how firms can navigate the uncertainties that arise from it. This paper is the first effort to provide evidence that companies in Vietnam engage in Environmental, Social, and Governance (ESG) practices to mitigate GPR. Utilizing a unique dataset of ESG performance of publicly listed companies on the Vietnam stock markets from 2018 to 2023, the study demonstrates that increasing levels of GPR, both globally and in eight major economies, lead to heightened ESG activities among firms. Specifically, the result shows that a one-unit increase in GPR is associated with an increase in ESG by 4,895 units. While GPR significantly influences environmental and social initiatives, governance activities show insignificant influence. Moreover, firms categorized as high-risk exhibit a more pronounced increase in ESG efforts in response to GPR compared to their low-risk counterparts, suggesting that these companies strategically use ESG to manage GPR. This study offers crucial insights for firms in Vietnam, highlighting the benefits of adopting ESG practices to safeguard against potential shocks stemming from geopolitical instability.