Geopolitical Risk and ESG Investing in Conflict-Affected Markets: Assessing Long-Term Liabilities and Resilience in Ukrainian and Russian Equities

The Russia-Ukraine war has reshaped global perceptions of geopolitical risk and ESG (Environmental, Social, and Governance) investing, particularly in conflict-affected markets. As of December 2025, the war has left over 53,000 civilian casualties and caused $100+ billion in infrastructure destruction in Ukraine, while Russia's economy has grown by 7% since 2022 despite sanctions. This analysis evaluates the long-term ESG liabilities and equity resilience of Ukrainian and Russian equities, drawing on recent data and frameworks to guide investors navigating these volatile markets.

Ukrainian Equities: ESG Alignment and Resilience Amid Destruction

Ukraine's push to align with European ESG standards, including the Corporate Sustainability Reporting Directive (CSRD), has positioned its equities as a case study in conflict-driven ESG adaptation. By 2025, Ukrainian companies have adopted simplified ESG reporting criteria to enhance competitiveness, with governance structures proving critical during the war. Firms with robust governance frameworks outperformed peers during the invasion, as investors perceived them as more resilient to disruptions.

Infrastructure destruction and civilian casualties have amplified ESG liabilities. For instance, the war has generated 294 million tonnes of CO₂-equivalent emissions, surpassing the annual output of 175 countries. Ukraine's energy sector, a key battleground, has faced 70% more damage to power infrastructure, with attacks on energy systems causing severe winter hardships. Yet, Ukrainian companies are leveraging ESG strategies to rebuild sustainably. Initiatives like the UN Global Compact Ukraine provide training and psychological support for employees, while reconstruction efforts prioritize energy-efficient infrastructure.

Equity resilience is evident in market responses. A global study of 17,000 firms found that Ukrainian companies with higher ESG scores experienced less negative cumulative abnormal returns (CARs) during the conflict, mitigating financial losses. This resilience is further supported by investor demand for transparency: firms exiting the Russian market and disclosing war-related risks saw improved ESG ratings.

Russian Equities: Sanctions, ESG Gaps, and Ethical Dilemmas

Russia's ESG landscape remains fragmented. While the Ministry of Economic Development recommends 44 ESG indicators, mandatory reporting is absent, creating significant information gaps. Sanctions have disrupted energy supply chains and raised ethical concerns about doing business in conflict zones. For example, European airlines faced financial losses due to the war, but firms with higher ESG scores showed stronger resilience.

The lack of ESG transparency in Russia has compounded risks. Companies have avoided disclosing sensitive data, making it difficult to assess their alignment with global sustainability goals. Additionally, Russia's war-related emissions and environmental damage-such as heavy metal pollution in Zaporizhzhia-pose long-term liabilities. Investors must weigh these risks against Russia's economic growth, which has outpaced Ukraine's -20.4% GDP decline since 2022 according to data.

Investment Implications and ESG Metrics

For Ukrainian equities, ESG performance is a buffer against geopolitical volatility. The country's focus on sustainable reconstruction and governance transparency aligns with European standards, attracting ESG-conscious investors. However, long-term liabilities such as climate compensation claims and infrastructure rebuilding costs require careful monitoring.

Russian equities present a paradox. While the economy has shown resilience, the absence of mandatory ESG reporting and ethical controversies (e.g., war-related emissions) create reputational and regulatory risks. Investors must consider the potential for stricter global ESG norms to penalize firms complicit in conflict-driven environmental harm.

Conclusion

The Russia-Ukraine war underscores the interplay between geopolitical risk and ESG investing. Ukrainian equities demonstrate that strong governance and sustainability strategies can enhance resilience, even amid destruction. Conversely, Russian equities highlight the dangers of ESG opacity in conflict zones. As ESG frameworks evolve, investors must prioritize transparency, environmental accountability, and governance rigor to navigate these markets effectively.