ESG Investing to Remain Resilient Amid Geopolitical Shocks, Says Keiko Honda

Global Investors Reassess Risks Amid Geopolitical Tensions

Geopolitical tensions and energy disruptions are unlikely to reverse sustainable investing trends or trigger immediate shifts in global capital flows, according to a leading investment expert. However, these developments are forcing investors to reassess risks more sharply.

Geopolitical risks are now being reassessed as "bigger than originally thought," even as long-term Environmental, Social, Governance (ESG) commitments remain intact. Investors are adjusting how they evaluate risks rather than where they allocate capital.

Keiko Honda, a professor at Waseda Business School and former CEO of Multilateral Investment Guarantee Agency (MIGA), World Bank Group, recently visited Mumbai for the Export-Import Bank of India's commencement lecture. She emphasized that long-term investors do not necessarily make quick decisions and are thinking about the potential risks.

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Risk reassessment is the primary response to heightened geopolitical tensions, rather than a sudden shift in capital flows. Despite volatility across markets, including foreign exchange and equities, investors are unlikely to make abrupt changes. The current phase is leading to a deeper reassessment of geopolitical risks across asset classes.

Energy Shocks Trigger Short-Term Shifts

Supply disruptions may force companies to temporarily switch fuels, but such decisions are driven by operational necessity rather than a shift in long-term sustainability goals. Companies may be forced to switch from gas to oil or oil to coal, but these short-term adjustments do not represent a rollback of ESG commitments.

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These short-term adjustments do not represent a change in long-term sustainability goals. Investors and companies continue to maintain a long-term perspective on sustainability.

ESG Frameworks Expand Beyond Climate

The current geopolitical crisis is broadening the definition of sustainability beyond climate-focused goals to include a wider set of risks. Sustainability now includes biodiversity, managing geopolitical risk, and cybersecurity and data security.

The framework itself is not changing, but the way risks are assessed within those frameworks is evolving. The potential assessment of risk from some material factors could be bigger than originally thought.

No Reversal in Long-Term ESG Trajectory

The global push towards sustainable investing is unlikely to be derailed by current geopolitical disruptions. While some countries and companies may temporarily rely more on conventional energy sources due to supply constraints, the broader direction of investment remains aligned with sustainability.

The current phase reflects a structural shift in how investors assess risks by integrating geopolitical, cyber, and data security considerations, rather than a change in capital allocation strategies.