When markets lurch, we learn quickly which firms are built to last. Investors often look to balance sheets or levels of debt. But a growing body of evidence points to something else that matters for resilience: credible environmental and social performance.
In a recent peer-reviewed study, my co-authors and I analysed data from more than 22,000 companies over four years across 62 countries between 2018 and 2021. We asked a simple question: when global disruptions hit, do firms with stronger sustainability performance experience less financial risk? The answer was yes – and the effect was economically meaningful. In plain terms, ESG strength acted like real-world risk insurance, dampening volatility and supporting recovery when conditions turned rough.
Why should policymakers and investors care now? Because the next shocks are unlikely to look identical to the last. Climate-related disruptions, social instability and governance failures are not hypothetical. They are material risk channels that propagate across borders through supply chains, capital markets and insurance costs. For Indo-Pacific economies – deeply exposed to climate extremes and geopolitical uncertainty – the stakes are particularly high.
Three findings stand out.
First, the resilience premium is measurable. Across global markets, firms with stronger environmental and social performance exhibited lower firm-level risk during turbulent periods. This isn’t a branding story. It’s a market-behaviour story: credible practices build stakeholder trust, reduce uncertainty about cash flows, and limit the amplification of bad news. For large asset owners, this suggests treating ESG signals not as an overlay but as inputs to risk models and stewardship priorities.
The evidence shows that firms taking sustainability seriously are not just “doing good”, they are managing risk in a world of compounding uncertainty.
Second, context matters. The protective effect was strongest in advanced, shareholder-oriented economies – places where disclosure is scrutinised and capital is quick to reward (or punish) behaviour. That should interest regulators designing sustainability reporting rules and supervisors monitoring greenwashing. Where disclosure quality is high and accountability real, markets appear better at pricing the resilience benefits of responsibility.
Third, the mechanism is practical, not mystical. Firms that invested in stakeholder relationships – employees, customers, suppliers, communities – seemed to preserve confidence when uncertainty spiked. That aligns with what long-horizon investors already know: human capital, supply-chain continuity and licence-to-operate are risk variables, not soft add-ons.
What does this mean for policy?
For one, governments advancing mandatory sustainability disclosure (including climate-related reporting aligned with emerging global standards) can frame reform as risk transparency rather than ideology. Investors and lenders need decision-useful, comparable information to differentiate credible transition and resilience strategies from slogans. High-quality disclosure reduces information asymmetry and supports capital allocation to sturdier firms – exactly what economies want when shocks hit.
Supervisors should also sharpen anti-greenwashing enforcement. If markets reward ESG strength with lower perceived risk, the incentive to exaggerate credentials grows. Penalties for misrepresentation, together with clear guidance on materiality and assurance, help ensure the “resilience premium” accrues to firms that have earned it.
Finally, consider public–private resilience compacts in exposed sectors (energy, agriculture, critical infrastructure). Where governments co-invest in adaptation and transition, they should require transparent, verifiable sustainability strategies and metrics. Done properly, this channels scarce public funds to the firms most likely to deliver system-wide risk reduction.
And for investors?
Integrate ESG variables where they belong – in risk forecasting and scenario analysis. Look for disclosure quality, governance of sustainability risks, and evidence of real operating practices: employee safety and retention, supplier diversification, community engagement in sensitive regions, and capex aligned with transition plans. In stewardship, prioritise board oversight of climate and social risk, escalation pathways for non-responsive issuers, and clear asks on assurance and data quality.
None of this implies ESG strength immunises firms against shocks. But it does suggest something consequential for global markets: responsibility is not a cost in the aggregate. It’s a capability – one that lowers the odds of catastrophic downside and improves recovery speed when the inevitable happens.
Policy is moving fast. So are the risks. The evidence shows that firms taking sustainability seriously are not just “doing good”. They are managing risk in a world of compounding uncertainty. That is a message for regulators shaping disclosure regimes, for investors allocating capital across volatile geographies, and for boards deciding whether sustainability is a side-office function or a core competency.
link