The returns-connectedness between environment, social, and governance funds and biofuels.

This study investigates the returns-connectedness (RC) between Environmental, Social, and Governance (ESG) funds and biofuel markets. RC analysis helps stakeholders understand the role of ESG funds in promoting biofuel transitions. Using econometric models such as the Time-Varying Parameter Vector AutoRegressive (TVP-VAR) and Continuous Wavelet Transform (CWT), we examine RC with data from January 2019 to December 2023. Our study shows some findings: (1) Positive RCs are more frequent between ESG funds and soybean oil, whereas RCs for ethanol are less common; (2) ESG fund returns exhibit a unidirectional influence on biofuel returns, particularly during the COVID-19 pandemic. Besides, our findings show that negative returns have a higher RC than positive returns. RCs occur at both high and low frequencies; (3) abrupt increases in RC levels are observed during global events, such as the COVID-19 pandemic and the Russo-Ukraine War; and (4) comparable RC patterns are present in developed and emerging markets. These findings suggest that targeted policies should encourage ESG investments to stabilize the biofuel market and accelerate the transition to biofuel energy.