Cross-regional spillover effects of sustainability indices: A heteroscedasticity-robust VAR approach

As the deadline of the Sustainable Development Goals approaches in 2030, there is increasing attention to the geographical diversification of sustainability indices. We investigate cross-regional spillover effects of the Dow Jones Sustainability Indices (DJSIs), using vector autoregressive models. Our contribution is to characterize the sign and statistical significance of spillovers by computing impulse responses and confidence intervals which are robust to conditional heteroscedasticity of unknown form. We detect significant, positive, unidirectional spillover effects from North America to Europe and Asia Pacific, a useful finding for investors and policymakers. Empirical results are similar when the DJSIs are replaced with the Dow Jones Indices, suggesting that sustainable investment could enhance global sustainability without sacrificing financial benefits. • We investigate cross-regional spillover effects of the Dow Jones Sustainability Indices. • The sign and statistical significance of spillovers are observed via impulse response analysis. • Our inference is robust to conditional heteroscedasticity of unknown form. • We detect significant, positive, unidirectional spillovers from North America to EU and Asia. • Empirical results are similar when the DJSIs are replaced with the Dow Jones Indices.