Impact of Macroeconomic Factors on S&P Europe 350 ESG Index During the Russo-Ukrainian War

Abstract

The Russo-Ukrainian War, which began on February 24, 2022, has introduced significant economic and geopolitical instability. This study aims to investigate the specific impact of key macroeconomic variables - interest rates, exchange rates, inflation, oil, and gas prices—on the S&P Europe 350 ESG Index (SPEESEP) during this conflict. By analyzing daily data spanning 20 months from April 20, 2021, to November 30, 2022, encompassing both pre-war and post-war periods, we employ the Wavelet Coherence Transformation (WCT) method to examine these relationships. Our findings reveal that exchange rates, oil, and gas prices significantly impact the ESG index, while interest rates and inflation exhibit a moderate influence. These results underscore the importance of understanding macroeconomic fluctuations during geopolitical crises for informed investment decisions. The broader significance of this study lies in its potential to guide investors in navigating the complexities introduced by geopolitical conflicts, thereby aiding in better financial decision-making and risk management. By developing appropriate regulations for the ESG industry, this research can contribute to minimizing risks and maximizing profits in volatile environments. As geopolitical risks are a persistent factor in investing, this study emphasizes the necessity for investors to meticulously evaluate these risks when devising investment strategies.