Time-Varying Connectedness Among Sustainable Financial Assets: Are There Diversification Opportunities?

Nourhaine Nefzi, Maroua Jerbi and Hela Ayadi

Chapter 8 in Climate Finance & Accountability:A Comprehensive and Holistic Approach, 2026, pp 227-252 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This study investigates the dynamic connectedness within the green market by focusing on four green indices, each representing a distinct category: green bond, corporate sustainability performance, clean energy, and clean cryptocurrency. We apply the Time-Varying Parameter Vector Autoregression to daily frequency data spanning from September 27th, 2019 to April 6th, 2023. Our findings confirm the existence of a dynamic relationship across the selected green indices during market turbulence, with the green bond index presenting the lowest connectedness with all other indices. We also confirm the absence of significant connectedness between the corporate sustainability performance and clean energy indices during both normal and crisis periods. These two indices are identified as primary shock contributors within the network during periods of heightened market turbulence, with the clean cryptocurrency asset being the most resilient shock receiver. Our analysis indicates significant hedge and safe haven implications, thus providing investors with informed decisions when selecting green asset investments. Additionally, these insights are crucial for policymakers seeking to understand the dynamics of green markets and to facilitate the transition toward a more sustainable economy.

Keywords: Climate Finance; Environmental; Social; and Governance (ESG); Climate-Related Financial Disclosures; TCFD (Task Force on Climate-Related Financial Disclosures); Corporate Sustainability; Financial Risk Management; Sustainable Investing; Climate Risk Reporting; Corporate Environmental Accountability; Regulatory Frameworks; Capital Markets and Climate Risk; Carbon Transition Risk; Physical Climate Risk; Financial Disclosure Regulation; Responsible Investment (search for similar items in EconPapers)
JEL-codes: G32 M14 Q54 Q56 (search for similar items in EconPapers)
Date: 2026
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