Dynamic interconnectedness and portfolio strategies in green finance: Evidence from clean energy, ESG, and smart infrastructure

This paper investigated the dynamic interconnectedness and portfolio implications of five major pillars of green finance: clean energy (CEN), ESG equities (ESG), green bonds (GBD), smart-grid infrastructure (SGI), and ecology-focused equities (ECO). Using daily SandP indices from 2015 to 2025, we applied a TVP-VAR-based extended joint connectedness framework to quantify total, net, and bilateral spillovers. The results indicated a structurally integrated system, led by SGI and ECO as persistent shock transmitters, while GBD consistently operates as a net receiver. CEN and ESG alternate between transmission and absorption depending on market regimes, particularly during COVID-19 and the Inflation Reduction Act period. Portfolio analysis showed that network-aware allocation via the minimum connectedness portfolio (MCoP) outperforms traditional variance- and correlation-based strategies (MVP, MCP) by improving drawdown control and cumulative returns. The study contributes by incorporating infrastructure and ecological assets into green contagion analysis and by translating systemic connectedness into actionable portfolio strategies, offering practical insights for sustainable investment management.