ESG Uncertainty and Volatility Spillovers among BRICS Markets

Abstract

This study investigates the two-way relationship between ESG uncertainty and volatility spillovers across BRICS stock markets over the period November 2002 to March 2025. Conditional volatilities are modelled using an E-GARCH framework, while spillover dynamics are assessed through a Time-Varying Parameter VAR model. Granger causality tests are then employed to explore how ESG uncertainty interacts with market interconnectedness. The results reveal significant yet asymmetric volatility spillovers, with BRICS market connectedness intensifying during episodes of elevated ESG uncertainty. Short-run spillovers exert a strong influence on ESG uncertainty, whereas the opposite effect is comparatively weaker, suggesting that financial markets act as forward-looking indicators of sustainability-related risk perceptions. Evidence of bidirectional causality between ESG uncertainty and bilateral spillovers further underscores the importance of major BRICS economies in shaping ESG dynamics. Overall, the findings provide valuable implications for portfolio allocation, regulatory design, and ESG risk management within BRICS markets.