Connectedness between sustainable exchanged‐traded funds in the presence of the Ukrainian war: Does political risk matter?

This paper analyses the connectivity between geopolitical risk (GPR) and several segments of exchanged‐traded funds, aligned with the United Nations Sustainable Development Goals (SDGs), in order to understand the implications of risk associated with wars, political tensions and terrorist acts in the dynamics generated by this type of asset. We studied the behaviour of assets representative of 6 SDGs and 2 GPR indices, over a period of approximately 14 and a half years, characterized by several market phases, with special emphasis on the pandemic crisis and the war in Ukraine. Resorting to dynamic analysis, based on several multivariate models, it was possible to identify spillover effects in phases corresponding to turbulence in financial markets, in particular in the downward movements of prices of sustainable assets, generated from the geopolitical threat index. The results obtained are relevant for understanding the effect of GPR on sustainable investment, being of interest to various market actors.