On the Resilience of High-ESG Firms: An Event Study of the Russo-Ukrainian War

Abstract: This study aims to deepen our understanding of the relationship between social capital and firm performance during times of crisis. To achieve this, we use ESG scores as a proxy for social capital and investigate whether European high-ESG firms outperformed low-ESG firms during the Russo-Ukrainian War, which we argue constitutes an exogenous market shock. Using cross-sectional and difference-in-difference regression models, we find no evidence supporting our hypothesis of a positive relationship between ESG score and firm performance during the crisis. Moreover, we find that firms with high ESG scores had higher volatility and lower returns than firms with low ESG scores, contradicting our hypothesis and previous research. We suggest two possible explanations for the diverging results: 1) either our hypothesis is incorrect for this crisis due to its unique nature in relation to social capital or ESG, or 2) there is an empirical issue with the methodology of using ESG as a proxy for social capital. Our findings suggest that future research should investigate what constitutes a "threshold" crisis in which social capital contributes to firm resilience. Additionally, this study highlights the need for further research to identify the most appropriate metrics for measuring social capital during crises. Such research can provide a valuable understanding for firms seeking to develop and implement strategies that capitalize on social capital to enhance their resilience and maintain their competitive edge during times of crisis.