Capital market maturity and environmental policy stringency under geopolitical risk

Environmental policy responses to geopolitical stress may vary across time and domestic economic conditions. The study examines the relationship between geopolitical risk and environmental policy stringency (EPS) in BRICS and newly industrialized economies. It evaluates how economic capacity, dependence on external finance, market accessibility, capital market maturity, and institutional integrity shape this relationship. Employing advanced econometric techniques, it is found that BRICS countries generally adopt less stringent environmental policies than newly industrialized economies. EPS shapes geopolitical risks by altering global energy dependencies. Financial development and market structure follow an Environmental Kuznets Curve and more mature capital markets are generally associated with stronger environmental regulation. Bayesian Vector Autoregression highlights that stringent policies reinforce themselves over time, supported by economic and financial stability. However, acute geopolitical shocks may weaken regulatory enforcement by increasing economic and energy-security pressures. These findings stress the need for cross-border policy harmonization, advocating for coordinated regional strategies that account for differences in economic and institutional capacity.