Does ESG Remain Protective Under Geopolitical Risk? Evidence From Inter‐Korean Tensions

This study examines whether environmental, social, and governance (ESG) performance reduces stock price crash risk when firms operate under geographically proximate geopolitical tension. We analyze a sample of non‐financial KOSPI firms over 2012–2021 and combine firm‐specific crash‐risk measures with Inter‐Korean Geopolitical Risk. Mean‐centered estimates show a significantly negative ESG association at average geopolitical risk, −0.840 for NCSKEW and −0.699 for DUVOL. The interaction between ESG and geopolitical risk is statistically insignificant, and the marginal ESG effect remains negative and significant from the 25th through the 75th percentile of the observed geopolitical‐risk distribution. The ESG result also survives firm and year fixed effects, whereas the main geopolitical‐risk coefficient is not robust to inference that recognizes the limited number of annual shocks. 2SLS/LIML models, fixed‐effects quantile regressions, alternative geopolitical‐risk controls, and industry tests do not support a hypothesized 1‐year attenuation effect of ESG impact on crash risk. Dynamic specifications provide suggestive evidence that attenuation may emerge with a longer delay. The evidence supports ESG resilience rather than a mechanical erosion of ESG protection under inter‐Korean geopolitical stress.