Dynamic risk connectedness of crude oil price and sustainable investment in the United States: evidence from DCC-GARCH

Sustainable investment is widely regarded as an important market-based approach to achieving inclusive green growth. To achieve the inclusive green growth objective, companies providing sustainable products must be profitable enough to attract private capital. Oil price changes can however affect the profitability of such companies. This study assesses volatility transmission between crude oil prices and sustainable investment in the USA. Using the dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity (DCC-GARCH) method, daily data from September 28, 2012, to October 19, 2022, is analyzed. There are several key findings from this analysis. The risk connectedness of crude oil and sustainable investment is found to vary with time. Results further show that the risk connectedness increases in periods of important economic and geopolitical events. The greatest risk connectedness of crude oil and sustainable investment is observed during the outbreak of coronavirus disease (COVID-19). Moreover, the result shows that crude oil is the main risk transmitter, whereas, both the energy efficiency and pollution mitigation indices (i.e., sustainable investment) are risk receivers, and crude oil is constantly dominating sustainable investment. The study findings provide valuable insights for investors and policymakers alike.

Dataset on environmental, social and governance information firms and their merger and acquisitions activities

The increasing salience of sustainability concerns in financial markets has led to growing demand by financial institutions, regulatory authorities and other stakeholders for information on the Environmental, Social and Governance (ESG) credentials of companies. To address these demands, private firms providing ESG data and related products have expanded in size and in number. Reflecting the increased importance of ESG data, academics, sustainable finance practitioners and financial regulators have surveyed the emerging industry of these ESG information firms. However, to date no structured dataset on the characteristics of ESG information firms is available. The ESG Information Firms Dataset (ESGFiDa) presented in this article is a first step to address this gap. ESGFiDa consolidates the findings from the academic and gray literature on the ESG information industry and augments these with additional data gathered through desk research. Based on this multi-stage data collection process, the dataset provides 1) a meta-analysis of existing accounts of ESG information firms from a variety of sources and 2) consolidated and augmented data about 128 ESG information firms. The meta-analysis part of the dataset contains amongst others information on different estimates regarding the size of the ESG information industry that have been proposed in the literature. The second part of ESGFiDa provides data on 128 ESG information firms that have been identified from the literature and consists of five variables (Name, Type, Country, Continent, Year of incorporation, and Headquarters). In addition, mergers and acquisitions among the 128 ESG information firms are recorded in a dated and geolocated edgelist with 65 entries. These relational data can be used for network analysis. In summary, ESGFiDa offers a first systematized description of the dynamics of the emerging ESG information industry. As such, it can be of interest to students of sustainable finance from fields including finance and economics, political science, organization studies, sustainability studies and financial geography. Moreover, practitioners from financial institutions interested in the backgrounds and differences of ESG information firms as well as policymakers and financial regulators tasked with overseeing and regulating the emerging ESG information industry might find the presented dataset useful.

Time-varying price dynamics of clean and dirty energy portfolios

This paper investigates the dynamic relationships between four key instruments related to clean and dirty energy assets: WTI futures, United States Oil Fund (USO), EnergySelect Sector SPDR Fund (XLE), and iShares Global Clean Energy ETF (ICLN). Econometric tests confirm a long-term relationship between all variables, with causality tests showing that clean energy ETF has a causal influence on most instruments. However, the causal patterns are not definitively interpretable in an economic framework. Moreover, using wavelet-based tests on a 1-min interval transaction dataset, we further find convergence delay between WTI and XLE, and to a lesser extent, USO, but not ICLN. This suggests that clean energy has the potential to be a distinct asset class. We also identify the time scales at which arbitrage opportunities and liquidity movements occur: 32-256 and 4-8 min, respectively. These are new stylized facts about clean and dirty energy market assets and contribute to the limited literature available on high-frequency dynamics in the said markets.

How reactive is investment in US green bonds and ESG-eligible stocks in times of crisis? Exploring the COVID-19 crisis

This study examines how green bonds and environmental, social and governance (ESG) stock market returns have reacted to the COVID-19 crisis in the US. Unlike the Standard and Poor's (S&P) 500 index, the response of green bonds and ESG markets to pandemic progress is nonlinear: A low (large) level of confirmed new cases of COVID-19 has a positive (negative) impact. Furthermore, the implemented containment policies (stringency measures and vaccination campaigns) are positively valued, but their simultaneous use is perceived by investors as a bad signal. Overall, our findings question the resilience of investments in green bonds and ESG markets.

Effects of climate policy uncertainty on sustainable investment: a dynamic analysis for the U.S

Uncertainties surrounding climate change policies of the United States introduce some degree of risk into sustainable investment decisions in the country. This study is an attempt to provide a new perspective on the nature of this problem. Both the traditional and time-varying nonparametric quantile causality techniques are employed in investigating the effects of climate policy uncertainty on sustainable investment in the United States. Weekly time-series data from October 17, 2010, to August 28, 2022, is used for empirical analysis. Results from the traditional nonparametric quantile causality analysis reveal that climate policy uncertainty has a significant causal effect on both sustainable investment returns and volatility. The results also show that the impact on sustainable investment volatility is greater than the impact on sustainable investment returns. The time-varying nonparametric quantile causality analysis confirms that climate policy uncertainty in the United States affects both the returns and volatility of sustainable investment and that the impact is greater for volatility. It is recommended that governments and policymakers ensure that climate policy objectives are properly defined and adhered to, such that regulatory uncertainty would be limited and private sector participation in sustainable investment would be encouraged. İn addition, policies clearly designed to incentivize sustainable investment by integrating risk premiums into expected profits could be employed.

Are sustainable investments interdependent? The international evidence

The rising concerns about climate change and environmental degradation have urged various stakeholder to focus on sustainable investments that are facing a drag from the Covid-19 pandemic. Since environmental and Covid-19 challenges are global, it is critical to assess the interlinkages of sustainable investments. In this research, we employ the dependence, centrality, and dynamic network approach to examine the interdependence and its determinants across multiple countries between January 2009 and March 2021. The findings indicate France as the lead risk transmitter while Japan and Taiwan show risk reception among international markets. We observe an increase in dependence during economic turmoil notably in Covid-19 episode. The centrality network revealed the prominent significance of sustainable investments in the European countries that can be attributed to their exceptional efforts to combat the climate change. Finally, our results suggest that the volatility in gold prices is the key driver of interdependence of sustainable investments.

Rich forests, rich people? Sustainable finance and its links to forests

Investment products labelled as sustainable, as well as regulations on sustainable finance, such as the EU taxonomy for sustainable activities, are on the rise globally. While some of these products and regulations include forests and forestry, the forest-sustainable finance nexus is largely unexplored in academic research. This paper systematically analyses the emerging expert debate spanning across the financial and forest sectors. We conducted 51 in-depth qualitative interviews with experts from financial institutions, timberland and impact investors, international organizations, civil society organizations and academia. We chose mainly experts from Europe, as one of the regions spearheading the topic globally. Based on these, we identify five main narratives on the nexus between sustainable finance and forests. These narratives are strikingly different regarding such dimensions as emphasis on risks versus opportunities, preference for public versus private governance and investments, as well as on the sustainability of forest-related investments per se. While financial sector experts are mainly concerned about financial risks, and only partially about deforestation risks, forest sector experts with financial expertise promote investment opportunities either for the asset class, or to increase private investment in tropical forests. In contrast, some experts from both the forest and financial sectors explicitly exclude forests as investable assets for the private sector, seeing them instead as pure public goods. We conclude with underlining the importance of more cross-sectoral dialogue, but also research, to both critically assess and advance the role of sustainable finance policy and practice in supporting forest conservation, restoration, and sustainable management.

Revisiting the sustainable versus conventional investment dilemma in COVID-19 times

Sustainable living has emerged as the need of the hour for mankind in present times. Practitioners, as well as scholarship in the area, are divided over the comparison of financial returns from sustainable indexes vis-à-vis conventional indexes, causing investors' dilemma. These questions loom larger during the times of global crises, such as COVID-19, which have brought sustainability concerns to the limelight. This dilemma of the investors leads us to approach the study on hand. We study the Thomson Reuters/S-Network global indexes (as a proxy for sustainability-based indexes), and their corresponding alternatives, using the daily closing prices from 1^st January 2011 to 29^th June 2020. We apply the time-frequency-based Granger-Causality test, and further attempt to understand the coherence between these indexes before and during the COVID-19 period by using the Wavelet Coherence and phase-difference mechanisms. Our results suggest short-run uni-directional causality from sustainable indexes to conventional indexes whereas bi-directional causality in medium and the long-runs. The coherence is particularly stronger at low frequencies, indicating the long-run coherence with sustainable indexes in the lead during COVID-19. The results and conclusions of the study have important implications for different audiences. The portfolio and fund managers can prefer to invest in such markets to avail of higher returns over a longer period.

Green Recovery Policies for the COVID-19 Crisis: Modelling the Impact on the Economy and Greenhouse Gas Emissions

The COVID-19 pandemic induces the worst economic downturn since the Second World War, requiring governments to design large-scale recovery plans to overcome this crisis. This paper quantitatively assesses the potential of government investments in eco-friendly construction projects to boost the economy and simultaneously realise environmental gains through reduced energy consumption and related greenhouse gas emissions. The analysis uses a Computable General Equilibrium model that examines the macroeconomic impact of the COVID-19 crisis in a small open economy (Belgium). Subsequently, the impact of the proposed policy is assessed through comparative analysis for macroeconomic parameters as well as CO₂ equivalent emissions for four scenarios. Our findings demonstrate that the COVID-19 pandemic damages economies considerably, however, the reduction in emissions is less than proportionate. Still, well-designed public policies can reverse this trend, achieving both economic growth and a disproportionally large decrease in emissions. Moreover, the positive effect of such a decoupling policy on GDP is even stronger during the pandemic than compared to the pre-COVID-19 period. This is the result of a targeted, investment-induced green transition towards low energy-intensive economic activities. Finally, this paper describes how the net effect on the government budget is positive through the indirect gains of the economic uptake.

Impact investing market on Twitter: influential users and communities

The 2008 financial crisis unveiled the intrinsic failures of the financial system as we know it. As a consequence, impact investing started to receive increasing attention, as evidenced by the high market growth rates. The goal of impact investment is to generate social and environmental impact alongside a financial return. In this paper we identify the main players in the sector and how they interact and communicate with each other. We use Twitter as a proxy of the impact investing market, and analyze relevant tweets posted over a period of ten months. We apply network, contents and sentiment analysis on the acquired dataset. Our study shows that Twitter users exhibit favourable leaning (predominantly neutral or positive) towards impact investing. Retweet communities are decentralised and include users from a variety of sectors. Despite some basic common vocabulary used by all retweet communities identified, the vocabulary and the topics discussed by each community vary largely. We note that an additional effort should be made in raising awareness about the sector, especially by policymakers and media outlets. The role of investors and the academia is also discussed, as well as the emergence of hybrid business models within the sector and its connections to the tech industry. This paper extends our previous study, one of the first analyses of Twitter activities in the impact investing market.