On the relationship between policy uncertainty and sustainable investing

Abstract

Purpose In recent times, sustainable investment gaining much attention within the investors’ community and it is broadly driven by environmental, social and governance (ESG) factors. This study aims to examine the ESG-based sustainability index and economic policy uncertainty (EPU). Design/methodology/approach Corporate sustainability assessment procedure yields Dow Jones sustainability indexes (DJSIUS) and ESG compliant firms become a member of such indexes. To uncover the effects of policy uncertainty as follows: the study considers EPU index, equity market policy uncertainty index, economic and political events for the period 2000–2017. The authors present the study using a conditional volatility framework. Findings The correlation between the DJSIUS and policy uncertainty appears to be negative and statistically significant. It is apparent from the results that policy uncertainty does contain important ESG factors that explain the sustainable investment in US firms. Moreover, the stock market boom, credit crunch, Lehman collapse and fiscal crises have shown significant adverse effects on the sustainability index. More importantly, it is seen that investors’ sustainable investing considers presidential election years for portfolio planning; the uncertainty associated with the election years has also shown a negative impact on the sustainable returns. Practical implications First, sustainability is essential for the long-term stakeholders’ wealth maximization under governments’ policy uncertainty such as constrained resources, demographic and climate-change-policy, societal expectations, public-policies, regulatory structure. Second, EPU creates new opportunities and risks for sustainable firms and sustainable investing. Originality/value The study is novel in which the authors present the effects of uncertainty on socially responsible investing.

The role of uncertainties on sustainable stocks and green bonds

“…The magnitude of information flow is higher from the Crude Oil uncertainty to the sustainability indices, like Dutta et al ’s (2020a, 2020b) findings that suggest the vulnerability of green investments to oil market volatility. The S&P500 VIX is only linked to the DJS US index at the 10% level, where the information transmits from the uncertainty to sustainability measure, not vice versa, in line with the results of Shaikh (2021) and Umar et al (2020). We observe significant information flows from the Emerging Markets ETF uncertainty to the DJS Emerging Markets and S&P Green Bond indices, at the 10% level, but not vice versa.…”

“…Their results suggest that the sustainability indices may serve as valuable tools to reduce the negative impacts of uncertainty. In a recent paper, Shaikh (2021) examines the impact of uncertainty on the sustainability index and tries to figure out whether sustainable investing is resilient against major economic and political events. He considers the Dow Jones Sustainable Index US as sustainability index and the VIX, EPU and equity market policy uncertainty (EMPU) index for uncertainty.…”

Identification and analysis of critical barriers for achieving sustainable development in India

“…These barriers have strong driving power combined with strong dependence. The results are in line with the study conducted by Shaikh (2021), which depicts the importance of sustainability for long-term growth of an economy in terms of policy formulations, structuring of regulations keeping circular economy and societal perspective in mind. Thus, government and policymakers should highly prioritize tackling the barriers that have high driving power and, thus, have the capability to influence other barriers.…”

The Relationship Between the Indices of Volatility (VIX) and Sustainability (DJSEMUP): An ARDL Approach

“…As a result, The VIX Index, which represents implied volatility, has a negative effect on the SRI indices mentioned. Shaikh (2022) analyses the relationship between sustainable investment and uncertainties in the stock market period between 2000-2017. The VIX Index is used as an equity market uncertainty.…”