In search of light in the darkness: What can we learn from ethical, sustainable and green investments?

Abstract

We analyse time-varying risk spillover and dependence to assess the systemic risk benefits of ethical, sustainable, and green investments. Our data comprise sustainable investments from ethical, environmental, social and governance (ESG), and green bonds. We investigate the link to major asset classes, including equity, commodity, and currency markets. We find evidence of close connection between the major asset classes and sustainable assets, except green bonds. We also explore the improvement in hedging efficiency from combining ethical and ESG investments with commodities and currencies over investment horizons. Our analysis based on systemic risk measures indicates that there is evidence of lower time-scale systemic risk connectedness in the case of commodities and currencies combined with ethical and ESG assets. These findings have significant implications for portfolio managers, policymakers, and market participants.

Incorporating Green Bonds into Portfolio Investments: Recent Trends and Further Research

“…The first trend that studies sustainable financial markets includes the analysis of [9,28,56,57], which examines the coherence of extreme returns, assessing the impact of climate uncertainty, investigating the influence of environmental factors, exploring time-varying risk spillover and dependence, analyzing the performance of green bonds, and studying the relationship between sustainable investments and uncertainties. The studies provide valuable insights for portfolio allocation, risk management, and integrating sustainable assets into investment strategies.…”

“…Finally, the purple cluster (Figure 18a), with a centrality of 1.90 and an impact of 1.824, contains five authors and the topics of markets, risk, and green bonds. The studies in this cluster are conducted mainly by Yousaf, Suleman, and Demirer [98], Cepni et al [56], and Pham [75]. Then, for example, the findings of [98] emphasize the value of incorporating green investments, mainly green bonds, into portfolio strategies to diversify, hedge, and enhance risk-adjusted returns, especially during turbulent market states induced by significant events like the COVID-19 pandemic.…”

“…Finally, the purple cluster (Figure 18a), with a centrality of 1.90 and an impact of 1.824, contains five authors and the topics of markets, risk, and green bonds. The studies in this cluster are conducted mainly by Yousaf, Suleman, and Demirer [98], Cepni et al [56],…”