Authors: Mohammad K. Newaz and Adnan Aslam
Journal: Journal of Environmental Management (2025)
DOI: https://doi.org/10.1016/j.jenvman.2025.127750

Environmental, Social, and Governance (ESG) bonds have become popular investments because they finance projects that support sustainability and social development. However, political conflicts, wars, and international tensions can affect financial markets, including ESG investments.

This study examines how geopolitical risks influence different types of ESG bonds, including green, blue, climate, sustainability, social, and Islamic (sukuk) bonds. We used advanced statistical techniques to analyse how these bonds react over time to changes in global political uncertainty.

Our findings show that geopolitical risk generally spreads instability across ESG bond markets. Green, climate, sustainability, and social bonds tend to pass these shocks on to other markets, while blue bonds and sukuk are less affected and often absorb the shocks instead. Although ESG bonds can provide useful protection for long-term investors, they are more vulnerable during periods of short-term political uncertainty.

The study also demonstrates that investors can achieve better investment performance by adjusting their portfolios according to changing geopolitical conditions rather than keeping the same investments over time. These findings provide useful guidance for investors, fund managers, and policymakers seeking to build more resilient sustainable investment portfolios.