Retrospective on the importance of sustainability in investor thinking before and after the COVID-19 syndemic

Abstract Non-Technical Summary The COVID-19 syndemic had a strong impact on financial market volatility. This study compares traditional indices, such as the Standard & Poor’s (S&P) 500 and the Euro Stoxx 50, with their sustainable counterparts; the Dow Jones Sustainability World Index (DJSWI); and the EURO STOXX Sustainability Index. The results show that the sustainable indices were more stable and less volatile before and after the crisis, suggesting that investors perceive less risk in sustainable companies. These findings reinforce the importance of considering sustainability in investment decisions, especially in times of uncertainty. Technical Summary With the ever-increasing importance of sustainability, it is a good time for a retrospective on the impact of the COVID-19 polycrisis on stock market volatility through a comparison of traditional indices such as the S&P 500 and the Euro Stoxx 50, with their sustainability counterparts; the DJSWI; and the EURO STOXX Sustainability Index. Using GJR-GARCH and E-GARCH models, the study reveals that sustainability indices exhibited greater stability and lower volatility before and after the syndemic, suggesting a lower risk perception by investors in sustainable companies. The implied volatility analysis confirms this stability, showing a more significant impact on traditional indices. Although all indices experienced greater sensitivity to negative shocks, sustainable indices showed a faster and more consistent recovery. These findings highlight the importance of considering sustainability factors in risk assessment and investment decision-making, especially in times of crisis. Social Media Summary Sustainable indices in Europe and the USA showed lower volatility and faster recovery after COVID-19 polycrisis.