The Impact of Uncertainty Indices on Sustainable Investments in India: TVP-VAR-Based Connectedness Approach

This paper examines how strong is the policy uncertainty networks transmitting information to sustainable investments in an emerging market like India, specially by employing TVP-VAR on monthly closing value of three sustainability indices from Bombay Stock Exchange, namely S&P BSE CARBONEX (CARBONEX), S&P BSE GREENEX (GREENEX), S&P BSE 100 ESG Index (ESG100) and three policy uncertainty indices, namely Energy Uncertainty Index (EnergyPU), Climate Policy Uncertainty Index (ClimatePU) and Economic Policy Uncertainty Index (EconomicPU) for the period spanning from October 2017 to October 2022 comprising a total of 60 observations. The empirical results show that the net directional connectedness of ClimatePU is negative proving that it is the net risk receiver of spillover and the BSE sustainable indices are the net risk transmitter with positive net directional connectedness. The findings offer valuable implications for policymakers and investors wherein the investors can manage risk and can attain effective sustainable investments and policymakers can stabilize the signals to increase the asset allocation into sustainability aligned ventures that will lead to the stability of the economy.