Dynamic spillovers between climate risk, energy transition, and sustainable finance: implications for financial markets

Unofficial AI-generated summary based on the public title and abstract. Not an official translation.

🔬研究者:Researchers studying financial spillovers in the context of climate risk and energy transition can adopt the TVP-VAR methodology and explore extensions with sectoral or country-level data.

🏢実務担当者:Corporate sustainability teams and financial risk managers can use the insights to better understand how climate risk and renewable energy markets affect portfolio volatility and to inform hedging strategies.

🏛政策担当者:Regulators and central banks may consider the findings for designing macroprudential policies that account for short-term spillover dynamics during climate-related crises.

The purpose of this paper is to analyze the dynamic interconnections and spillover effects among climate risk, carbon emissions, renewable and nonrenewable energy markets and sustainable finance instruments over time and across different market conditions. By using a time-varying parameter vector autoregression (TVP-VAR) framework, the study aims to capture the temporal evolution and direction of risk transmission across these sectors, particularly during periods of heightened uncertainty such as the COVID-19 pandemic and the Russia–Ukraine conflict. To examine the evolving interconnections between climate risk, energy markets and sustainable finance, this study uses the TVP-VAR model. This advanced econometric framework allows for the measurement of dynamic spillovers and risk transmission across multiple markets while accounting for time-varying relationships and structural changes driven by global crises such as the COVID-19 pandemic and the Russia–Ukraine conflict. The empirical analysis shows that interconnectedness among climate risk, energy markets and sustainable finance is highly dynamic, intensifying during crises such as COVID-19 and the Russia–Ukraine conflict. Short-term connectedness (1–5 days) dominates, revealing rapid shock propagation and amplified systemic risk, while long-term linkages (>5 days) remain stable, reflecting slower structural effects. Renewable energy markets, though central to the transition, can increase short-term volatility. The consistency of directional spillovers across frequencies validates the robustness of the methodology. Overall, results underscore the need for time- and frequency-sensitive risk management, informing portfolio strategies and regulatory frameworks in a low-carbon, circular economy. Understanding the dynamic interconnectedness between climate risk, energy markets and sustainable finance is increasingly critical for investors, policymakers and researchers. While previous studies have examined spillovers among commodities and financial assets, there is limited evidence on the time-varying role of renewable and nonrenewable energy markets, carbon emissions and green financial instruments as risk transmitters or absorbers during unprecedented shocks such as COVID-19 and the Russia–Ukraine conflict. This study addresses this gap by using a TVP-VAR and quantile connectedness framework, capturing both short- and long-term spillovers. The findings provide novel insights for portfolio diversification, risk management and policy design in the transition toward a low-carbon, circular economy.

• semanticscholar https://doi.org/10.1108/ijccsm-11-2025-0433first seen 2026-05-06 00:22:42