Volatility Spillovers Within the Sustainable Investment Ecosystem: Evidence from ESG Equity and Bond ETFs

This study examines dynamic volatility spillovers and correlations across environmental, social and governance (ESG) equity and sustainable bond exchange traded funds in developed and emerging markets during 2020–2024. Using TVP-VAR connectedness and DCC-GARCH models, it provides an integrated assessment of interconnectedness across regional ESG equity portfolios and multiple sustainable bond categories. The findings reveal asymmetric risk transmission, with developed-market ESG equity portfolios emerging as the primary transmitters of volatility, while sustainable bond segments remain comparatively less integrated and continue to provide diversification benefits. Overall, the results show that sustainable financial markets are becoming increasingly interconnected, although important differences persist across asset classes and regions.