From brown to green: how renewable deployment and geopolitical risk shape the pathway to a sustainable energy market transition

The deployment of renewable energy has expanded rapidly to meet the growing demand for a sustainable green economy. However, existing literature has largely overlooked its impact on stock market performance, particularly energy stocks. This paper offers new insight into how renewable energy deployment and geopolitical risk together influence the transition from brown to green energy markets. It is the first to examine the dynamic relationship between renewable energy deployment and energy stock performance, distinguishing between traditional (brown) and renewable (green) energy stocks, while also assessing how geopolitical risk shapes this evolving relationship. Using the dynamic autoregressive distributed lag simulations, our results show heterogeneous reactions of brown and energy stocks to renewable energy deployment. Specifically, (i) renewable energy deployment has no significant effect on brown energy stocks but has a positive and significant impact on green energy stocks, which reflects the ongoing shift towards a cleaner energy economy, and (ii) geopolitical risk plays a critical moderating role, as heightened geopolitical tensions may slow the green energy transition by affecting investor behaviour. These findings underscore the importance of incorporating geopolitical risks into energy market analysis. Such risks can create market inefficiencies and misalignments with sustainability-driven fundamentals, potentially affecting the performance of energy-related assets.