Impacts of Climate Policy Uncertainty on Turkish Equity Markets: Evidence from the Borsa Istanbul Energy and Industrial Sectors

As a defining global crisis of the current century, climate change transcends environmental issues, fundamentally altering the fabric of international economic systems and financial landscapes. Within this framework, the volatility surrounding environmental regulations has emerged as a significant systemic risk, affecting investor sentiment and international financial stability. The present research investigates how climate policy uncertainty (CPU) originating from prominent developed nations, specifically the US, the UK, Germany, and France, propagates into the Turkish financial sector, with a primary focus on the BIST Energy and BIST Industrial indices. By utilising monthly data spanning from January 2010 to December 2023, this analysis adopts a robust econometric approach incorporating Johansen’s cointegration methodology and Vector Error Correction Modeling (VECM), complemented by variance decomposition and impulse-response analysis. Empirical results substantiate the existence of a persistent equilibrium between CPU metrics and specific sectoral indices in Türkiye, particularly regarding the influence of the U.S. and U.K.markets. Furthermore, the findings suggest that Turkish financial markets respond swiftly to CPU–related shocks in the short term, eventually aligning with long-term trends. A notable sectoral divergence is observed where the BIST Energy index is positively influenced by climate policy volatility in the long run, likely due to renewable energy transition expectations, whereas the BIST Industrial index faces a more enduring adverse impact driven by regulatory costs and investment postponements. Ultimately, these results emphasise the role of climate policy as a vital channel for international financial transmission and highlight the necessity of transparent policy frameworks to strengthen financial resilience in emerging economies.