Navigating Uncertainty: The Impact of <scp>ESG</scp> Factors on Clean Energy Markets and Investment Dynamics

ABSTRACT The transition to clean energy is central to achieving global sustainability goals; however, it is increasingly shaped by the complex interplay of Environmental, Social, and Governance (ESG) factors and macroeconomic risks. While prior research has examined various determinants of clean energy investment, limited attention has been paid to the distinct role of ESG uncertainty in influencing market dynamics. In a context of evolving regulatory frameworks, shifting investor priorities, and heightened geopolitical tensions, this study investigates how ESG uncertainty, in conjunction with macro‐risks, economic policy uncertainty, geopolitical risk, financial market volatility, oil price volatility, and climate policy uncertainty, affects clean energy markets, alongside the stabilising roles of green bonds and carbon pricing. Using monthly data from January 2015 to September 2024, the Kernel‐based Regularised Least Squares approach is employed to capture nonlinear and heterogeneous effects. The results reveal that ESG uncertainty, economic policy uncertainty, and geopolitical risk consistently weaken clean energy markets, deterring investment and amplifying volatility. Conversely, green bonds and carbon pricing mechanisms act as critical stabilisers, reducing uncertainty and promoting sustainable capital flows. Interestingly, climate policy uncertainty and oil price volatility, while disruptive in the short term, generate long‐term opportunities for renewable energy expansion. The findings highlight the importance of strengthening ESG disclosure frameworks, ensuring policy consistency, expanding green bond markets, reinforcing carbon pricing mechanisms, and promoting international cooperation. By addressing this gap, the study contributes valuable insights for investors, policymakers, and researchers seeking to navigate uncertainty and accelerate the clean energy transition.