Climate change and geopolitical conflicts: The role of ESG readiness

Abstract

This study examines the relationship between climate change vulnerability and geopolitical risk using data on 42 countries from 1995 to 2021. Utilising two distinct indices, the climate vulnerability index (CVI) and the country-specific geopolitical risk (CGPR) indices, we find that countries with high vulnerability to climate change are more likely to experience geopolitical conflicts. Further analysis reveals that country-level overall economic, social, and governance (ESG) readiness significantly mitigates this detrimental effect. This moderation is mainly attributed to the social and governance readiness measures. Additional tests indicate that the mitigating role of ESG is more pronounced for countries with high institutional governance. These results remain resilient through a set of endogeneity tests using matched samples of countries generated through propensity score matching (PSM) estimation. Our findings suggest that addressing climate vulnerability is crucial to promoting global peace and geopolitical stability.