How does the volatility of ESG stock indices spillover in times of high geopolitical risk? New insights from emerging and developed markets

Renata Karkowska and Szczepan Urjasz

Journal of Sustainable Finance & Investment, 2025, vol. 15, issue 3, 577-623

Abstract: Geopolitical and climate risks significantly impact global financial markets, influencing asset pricing, diversification, and stability. This study analyzes the volatility of ESG stock indices across the USA, Latin America, Europe, and Asia-Pacific from May 2014 to May 2023, revealing geographical differences. Employing structural break analysis and volatility connectedness indices, we examine shock spillovers and identify key transmitters and receivers. Results indicate North American and developed European markets are major shock transmitters, while emerging European and Asia-Pacific economies are primary receivers. Incorporating ESG factors slightly shifts these dynamics, with emerging Europe becoming a transmitter and Latin America shifting to a receiver. Policymakers in emerging markets should prioritize resilience, while developed markets need to mitigate their transmitter role. Understanding these evolving spillover dynamics, particularly with ESG factors, underscores the importance of geographic diversification and its sensitivity to geopolitical risks.

Date: 2025
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DOI: 10.1080/20430795.2025.2489395

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