Monetary Policy, Industrial Activity, and India’s Sustainability Indices

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🔬研究者:Useful for researchers studying sustainable finance and macroeconomic linkages in emerging markets.

🏢実務担当者:Investment professionals may consider how monetary policy and industrial activity affect sustainability index performance.

🏛政策担当者:Policymakers in emerging economies can note the sensitivity of green indices to interest rates and industrial output.

Sustainable investing has become an important part of modern financial markets, especially in emerging economies where environmental goals increasingly align with economic development. In this setting, it is essential to understand how sustainability-oriented stock indices respond to domestic macroeconomic conditions. This study examines the relationship between two key macroeconomic indicators—the policy interest rate (repo rate) and the Index of Industrial Production (IIP)—and the performance of India’s leading sustainability indices, namely the S&P BSE Carbonex and the S&P BSE Greenex. The analysis is based on monthly data from November 2012 to March 2024. The Autoregressive Distributed Lag (ARDL) bounds testing approach and the associated Error Correction Model (ECM) are employed to investigate long-run relationships and short-run dynamics. To analyse volatility behaviour, GARCH, EGARCH, and TGARCH models are used. In addition, the Capital Asset Pricing Model (CAPM) is applied to examine the risk–return characteristics of the sustainability indices relative to conventional market benchmarks. The results indicate the presence of a stable long-run relationship between sustainability index returns and the selected macroeconomic variables. An increase in the repo rate has a negative effect on index performance, suggesting that tighter monetary conditions weaken equity returns. In contrast, growth in industrial production supports sustainability index performance by signalling improvement in real economic activity. The short-run results show that deviations from equilibrium are corrected relatively quickly, implying that sustainability indices respond promptly to changes in macroeconomic conditions. Volatility analysis reveals persistent and asymmetric behaviour, where negative shocks increase volatility more than positive shocks. The Greenex displays lower volatility and faster mean reversion compared with the Carbonex, indicating relatively greater stability. From a sustainability accounting perspective, the findings additionally suggest that sustainability-oriented stock indices may reflect investor responses to ESG-related corporate signals and environmental accountability. The study therefore contributes to emerging discussions on the value relevance of sustainability-related information within developing capital markets. The study adds to the growing literature on sustainable finance in emerging markets and offers useful insights for investors and policymakers concerned with the development of stable and resilient green capital markets

• semanticscholar https://doi.org/10.1922/mq8hz229first seen 2026-07-01 06:00:30