Does the U.S. Lead the World in the ESG Sector? Evidence from the Dynamic Connectedness between the World ESG Sector and the U.S. ESG Sector

This paper examines the dynamic connectedness between the MSCI World ESG Leaders Index, S&P Green Bond Index, and the U.S. ESG Indices. We find that the relative importance of the global ESG equity market to the green bond market as well as the U.S. ESG equity market has kept growing, especially since the COVID-19 crisis. Thanks to the rising global awareness of sustainable development, the global ESG equity market has replaced the leading role of the U.S. in the ESG sector. Compared with the U.S. ESG equities, World ESG equities are found to be more influential on the clean energy market. In addition, ESG equity and green bond markets are becoming more integrated over time. Our findings draw policymakers’ attention to the importance of a steady growth in world ESG equities to both clean energy markets and green bond markets, which are crucial during the transition to the green economy. Finally, our findings suggest socially responsible investors could enhance their portfolio performance by allocating more money to global ESG stocks