The causal relationship between green finance and geopolitical risk: Implications for environmental management

Zhang, Dongna; Chen, Xihui Haviour; Lau, Chi Keung Marco; Cai, Yifei

Abstract

This study investigates the time-varying causal relationship between geopolitical risk and green finance during the period of 1 March 2012–February 16, 2022. By using the novel time-varying causality testing framework, our findings shed light on the nexus between geopolitical risk and green finance in informing environmental management decisions. First, we find that time heterogeneity does exist in the causal relations between geopolitical risk and green finance. Second, geopolitical risk has a more prolonged impact on the volatility of green bonds and renewable energy than the return. Yet, geopolitical risk tends to influence the return of clean energy more persistently than volatility. Third, we observe that geopolitical risk has a more sustained impact on the return and volatility of renewable energy than clean energy. This might be due to the distinct nature of the production of clean energy and renewable energy, thereby providing implications for effective environmental management. Lastly, this paper demonstrates that the impact of geopolitical risk on the return of European clean energy has diminished since the onset of 2015. The volatility of the European clean energy sector is not affected by global geopolitical risk, underscoring the necessity of promoting the development of this sector to reduce the dependence on fossil fuels and enhance energy independence.

Citation

Zhang, D., Chen, X. H., Lau, C. K. M., & Cai, Y. (2023). The causal relationship between green finance and geopolitical risk: Implications for environmental management. Journal of Environmental Management, 327, Article 116949. https://doi.org/10.1016/j.jenvman.2022.116949

• Journal Article Type: Article
• Acceptance Date: Nov 28, 2022
• Online Publication Date: Dec 9, 2022
• Publication Date: 2023-02
• Deposit Date: Mar 4, 2024
• Publicly Available Date: Dec 10, 2024
• Journal: Journal of Environmental Management
• Print ISSN: 0301-4797
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 327
• Article Number: 116949
• DOI: https://doi.org/10.1016/j.jenvman.2022.116949
• Keywords: Management, Monitoring, Policy and Law; Waste Management and Disposal; General Medicine; Environmental Engineering
• Additional Information: This article is maintained by: Elsevier; Article Title: The causal relationship between green finance and geopolitical risk: Implications for environmental management; Journal Title: Journal of Environmental Management; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jenvman.2022.116949; Content Type: article; Copyright: © 2022 Elsevier Ltd. All rights reserved.