ABSTRACT Climate policy uncertainty (CPU) has emerged as an important source of risk for financial markets, yet its sectoral implications remain underexplored, particularly in emerging economies. This study examines the impact of CPU on sectoral stock market volatility in India using a mixed‐frequency GARCH‐MIDAS framework. Daily returns from five NIFTY sectoral indices, Auto, IT, Energy, Bank and FMCG, are combined with monthly CPU measures and macroeconomic controls. The results reveal pronounced sectoral heterogeneity in volatility responses. The Energy and FMCG sectors exhibit strong sensitivity to both contemporaneous and lagged CPU shocks. Banking and IT sectors show moderate responsiveness, whereas the Auto sector appears relatively insulated from climate policy risk. Robustness tests confirm CPU as a key volatility driver beyond macroeconomic factors. The findings underscore the importance of sector‐specific risk management and highlight the role of climate policy signals in sustaining financial stability, aligning with Sustainable Development Goals 8, 9 and 13.
Jain et al. (Mon,) studied this question.