Sustainability at Risk: The Dual Forces of Geopolitical Uncertainty and Green Innovation

This study investigates the relationship between geopolitical risk and corporate carbon emissions score in the United States and the moderating effect of green innovation. We use dynamic panel models on a dataset of 2,162 non-financial firms listed on the USA stock exchanges. Our findings highlight that higher geopolitical risk is associated with stronger corporate efforts to reduce carbon emissions score, as reflected in improved emissions performance. This suggests that geopolitical uncertainty can act as a catalyst, motivating firms to strengthen their environmental commitments. The results further show that the effect of geopolitical risk is more pronounced for large firms, which possess broader resources and global exposure, making them both more sensitive to geopolitical pressures and more capable of responding with enhanced sustainability actions. Also, firms that invest in green innovation are especially effective in translating external geopolitical pressures into meaningful environmental improvements. This study contributes to the literature by providing firm-level evidence that geopolitical risk, rather than solely undermining sustainability, can stimulate stronger environmental performance when coupled with innovation-driven strategies.