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Climate transition risks, ESG sentiment and market value: Insights from the European stock market

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  • Gaies, Brahim
  • Chaâbane, Najeh
  • Adeosun, Opeoluwa Adeniyi
  • Sahut, Jean-Michel

Abstract

This study explores the links between climate transition risks, ESG sentiment and stock prices in the European context. It provides novel insights into the literature of sentiment-related stock markets, ESG's impact on firm market value, and climate-related financial analysis. Using an advanced methodology, including the time-varying parameter vector autoregressive (TVP-VAR) connectedness method and the quantile coherency technique, we uncover key findings on how ESG sentiment influences market behavior in the face of climate transition risks. Our main results indicate that European stock markets are highly vulnerable to climate transition risks, with sentiment acting as a key transmission channel. While positive ESG sentiment improves market valuation during stable periods, its effect weakens in times of market distress. Conversely, negative ESG sentiment strongly amplifies climate transition risk during both stable and unstable periods, dampening market enthusiasm and exacerbating market declines during instability. These effects persist through robustness tests, including an analysis of market volatility and a comparative study with the US context, where ESG uncertainty plays a key destabilizing role.

Suggested Citation

  • Gaies, Brahim & Chaâbane, Najeh & Adeosun, Opeoluwa Adeniyi & Sahut, Jean-Michel, 2025. "Climate transition risks, ESG sentiment and market value: Insights from the European stock market," Energy Economics, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:eneeco:v:148:y:2025:i:c:s0140988325004323
    DOI: 10.1016/j.eneco.2025.108605
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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