For years, my research has examined the relationship between Environmental, Social, and Governance performance and corporate financial outcomes. The premise has been straightforward. Responsible governance, environmental stewardship, and social investment are not simply ethical preferences. They are strategic drivers of long term value creation.
Yet every time war erupts somewhere in the world, I find myself asking a difficult question.
What happens to ESG when bombs fall?
Corporations publish sustainability reports. Investors allocate capital toward green portfolios. Universities teach ethical leadership. Firms commit to net zero targets. Boards speak of inclusion, stakeholder responsibility, and long term resilience.
But when geopolitical conflict escalates, the global system reveals a contradiction.
War destroys infrastructure, displaces communities, accelerates carbon emissions, diverts public funds away from education and healthcare toward weapons production, and destabilizes governance structures. It can erase decades of development progress within months. Environmental protections weaken. Social systems fracture. Governance shifts from transparency toward emergency control.
If ESG is about sustainability, then war is its antithesis.
The environmental dimension suffers through damaged ecosystems, fuel intensive military operations, and long lasting ecological harm. The social dimension deteriorates as human capital is lost, education is interrupted, inequality widens, and generations grow up amid instability. Governance erodes under secrecy, polarization, and concentrated power.
At the heart of this contradiction lies something deeper. Irrationality.
Much of ESG theory rests on the assumption that systems are ultimately guided by rational incentives. We assume that long term value creation is superior to short term extraction. We assume that institutions evolve toward stability because stability produces prosperity. We assume that actors recognize the benefits of accountability and restraint.
War challenges those assumptions.
War is rarely the result of careful multi generational cost benefit analysis. It is often driven by fear, pride, ideology, miscalculation, or political survival. Decisions become reactive rather than reflective. Emotions override prudence. Power eclipses dialogue.
When irrationality enters at the level of sovereign decision making, the rational architecture upon which ESG is built becomes fragile.
Markets may still function. Firms may still publish sustainability disclosures. Investors may continue to speak about responsible capital allocation. But the broader environment becomes distorted by forces that are indifferent to long term value creation.
Then comes the uncomfortable economic reality.
War reallocates capital.
Certain industries expand. Defense contractors experience rising demand. Energy and commodity markets surge amid supply shocks. Volatility creates trading opportunities. Some firms profit not because they have innovated or strengthened human capital, but because destruction itself generates demand.
These gains, however, are concentrated.
The broader social costs are dispersed.
Public budgets shift away from classrooms and hospitals toward military procurement. Infrastructure projects are postponed. Inflation rises under supply constraints. Currencies weaken. Insurance premiums increase. Risk spreads widen. Debt burdens grow.
And ordinary people bear the consequences.
Families are displaced. Workers lose livelihoods. Children fall behind in school. Healthcare systems strain under pressure. Savings evaporate in unstable markets. Migration increases as communities seek security elsewhere. The very foundation of long term economic growth, human capital, is weakened.
From an ESG perspective, war does not merely interrupt sustainability. It reverses it.
Environmental damage accumulates. Social cohesion deteriorates. Governance becomes less transparent and more centralized. The long term costs compound across decades.
Yes, some firms may record higher revenues. Yes, certain markets may rally in the short run. But these represent redistribution of wealth rather than genuine creation of sustainable value. Gains are concentrated while losses are spread across societies that can least afford them.
This is why war stands in such tension with the scholarly propositions behind ESG.
My research assumes that responsible governance, investment in education, ethical leadership, and development of knowledge based assets enhance financial performance over time. War represents a different logic. It rewards instability in the short term and imposes hidden costs in the long term.
It exposes a sobering truth.
Corporate sustainability efforts cannot fully shield economies from geopolitical irrationality. Firms can strengthen governance. They can invest in people. They can reduce emissions. But they operate within political systems that may abandon rational restraint.
This realization does not invalidate ESG scholarship. It clarifies its urgency.
If irrational decisions can undo decades of institutional progress, then strengthening institutions, investing in education, cultivating disciplined inquiry, and developing responsible leadership become even more critical. These are not abstract ideals. They are stabilizers against systemic breakdown.
Perhaps ESG at its core is an attempt to preserve rational order within economic systems.
War tests that order.
It reminds us that sustainability is not merely about metrics or disclosures. It is about protecting the conditions under which reason, accountability, and long term welfare can prevail over impulse and destruction.
ESG can guide firms.
It cannot restrain missiles.
But it can help rebuild institutions once irrationality has run its course.
And that is why the work must continue.
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