Quantifying the extreme spillovers on worldwide ESG leaders' equity

With the increasing consensus about the severity of climate change, environmental, social, and governance (ESG) philosophy has been rising and remarkably integrated into green investors' portfolio decisions. This paper applies the novel quantile-based VAR spillover index methods and examines the spillovers among worldwide ESG leaders' equity markets under different market states. Overall, the significant spillovers among global ESG leaders' equity can be captured. The Northern American and E.U. markets are the main risk transmitters to the global ESG investment market. Based on the quantile connectedness analysis, the spillovers among worldwide ESG leaders' equity are more significant for extreme market states than the normal states. Meanwhile, the downward tail risk spillover is larger than the upper. Thus, this paper obtains an asymmetric “U” shape curve to describe the total spillovers across different quantiles. The dynamic estimation also supports the asymmetric characteristics of the cross-market spillover effects and suggests external events could shape the pattern of dynamic connectedness. The potential determinants of total and net extreme spillovers are also investigated to help increase investors' awareness of ESG risk management decisions. Our findings eventually provide a crucial understanding of global ESG investment and indicate some targeted investment implications.