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Effects of climate policy uncertainty on sustainable investment: a dynamic analysis for the U.S

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Abstract

Uncertainties surrounding climate change policies of the United States introduce some degree of risk into sustainable investment decisions in the country. This study is an attempt to provide a new perspective on the nature of this problem. Both the traditional and time-varying nonparametric quantile causality techniques are employed in investigating the effects of climate policy uncertainty on sustainable investment in the United States. Weekly time-series data from October 17, 2010, to August 28, 2022, is used for empirical analysis. Results from the traditional nonparametric quantile causality analysis reveal that climate policy uncertainty has a significant causal effect on both sustainable investment returns and volatility. The results also show that the impact on sustainable investment volatility is greater than the impact on sustainable investment returns. The time-varying nonparametric quantile causality analysis confirms that climate policy uncertainty in the United States affects both the returns and volatility of sustainable investment and that the impact is greater for volatility. It is recommended that governments and policymakers ensure that climate policy objectives are properly defined and adhered to, such that regulatory uncertainty would be limited and private sector participation in sustainable investment would be encouraged. İn addition, policies clearly designed to incentivize sustainable investment by integrating risk premiums into expected profits could be employed.

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Data availability

We sourced all data from the World Bank Development Database.

Notes

  1. www.climatewatchdata.org

  2. Earth Day: U.S. Warming Rankings.

  3. There are two important reasons to justify the use of the rolling window approach: (1) the rolling window approach takes into consideration the view that the causality between variables varies throughout time, and (2) the rolling windows method can identify instability across several sub-samples (or windows) that results from the existence of structural changes.

  4. The sample period is dictated by the sustainable investment indices.

  5. For details, refer to Gavriilidis (2021).

  6. The reason for moving the windows for two weeks is to reduce the computational burdens.

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Authors and Affiliations

  1. Department of Economics, Istanbul Ticaret University, Istanbul, Beyoglu, Turkey

    Godwin Olasehinde-Williams

  2. Department of Business Administration, Faculty of Economics and Administrative Sciences, Tokat Gaziosmanpasa University, Tokat, Turkey

    Oktay Özkan

  3. Research Department, Central Bank of Nigeria, Abuja, Nigeria

    Seyi Saint Akadiri

Authors
  1. Godwin Olasehinde-Williams
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  2. Oktay Özkan
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  3. Seyi Saint Akadiri
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Contributions

GO collected data, analyzed the data, and did the methodology. SSA wrote the introduction and literature review. OO wrote the conclusion and policy suggestion, work on study development, and proofread the manuscript.

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Correspondence to Seyi Saint Akadiri.

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Olasehinde-Williams, G., Özkan, O. & Akadiri, S.S. Effects of climate policy uncertainty on sustainable investment: a dynamic analysis for the U.S. Environ Sci Pollut Res 30, 55326–55339 (2023). https://doi.org/10.1007/s11356-023-26257-1

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