NAVIGATING UNCERTAINTY: DYNAMIC LINKAGES BETWEEN SUSTAINABILITY INDICES AND ESG-RELATED SHOCKS

This research explores how sustainability-oriented stock-market benchmarks behave when different forms of macro-level uncertainty intensify. The core question is whether these indices dampen systemic risk or, instead, propagate additional volatility. Empirically, the study assesses two broad benchmarks—the Dow Jones Sustainability World Best-in-Class Index and the STOXX Europe Sustainability 40—against four sources of uncertainty: global energy-market volatility, an indicator of ESG-related ambiguity, crude-oil price turbulence, and the climate-policy uncertainty index. Long-run comovements are probed with the ARDL bounds-testing framework, while augmented Toda–Yamamoto procedures identify the direction of causality. All time-series are first subjected to Augmented Dickey–Fuller unit-root tests to establish their order of integration. Using monthly data for the period from January 2015 to November 2022, the results show that sustainability indices respond asymmetrically to different sources of uncertainty.DJSI is positively associated in the long term with ESG and climate uncertainty, while STOXX has positive and negative sensitivities. Short-run causality tests detect selective bidirectional relationships, indicating that sustainability indices do not only react to but also lead some measures of uncertainty. Overall, the results underscore the dual role of sustainability indices as reflective and predictive tools, offering insights into the way financial markets internalize sustainability-related risks in the face of shifting macroeconomic conditions.