Do climate and ESG uncertainty matter for stocks? Evidence from an asymmetric TVP-VAR connectedness

Purpose The purpose of this paper is to investigate the time-dependent and asymmetric connectedness between climate policy uncertainty (CPU), environmental, social, and governance uncertainty (ESGU) and stock market dynamics in four countries – China, Germany, the US and Türkiye. The study seeks to shed light on whether these uncertainties function primarily as transmitters or receivers of financial shocks, and how these relationships evolve across different stages of global economic and policy developments. Design/methodology/approach The analysis employs an asymmetric time-varying parameter vector autoregression (TVP-VAR) connectedness framework using monthly data from November 2002 to March 2025. System-level and country-level net connectedness measures are examined to capture both aggregate transmission patterns and cross-country heterogeneities. Findings The results reveal that total system connectivity fluctuates within the 35–40% range over the sample period. CPU exerted a pronounced spillover effect during 2002–2005, which gradually weakened over time, whereas ESGU predominantly acted as a net receiver until the pre-pandemic era, after which its connectedness diminished. Country-level evidence shows that the US and Germany mainly serve as net transmitters of shocks, while Türkiye and China emerge as net receivers. These patterns suggest that dynamic connectedness is shaped not only by uncertainty shocks but also by underlying factors such as countries' levels of economic development and trade linkages. Research limitations/implications The analysis is based on monthly data, which constrains the detection of high-frequency shock dynamics and short-lived contagion episodes. The study employs the general CPU and ESGU indices and is restricted to four countries; subsequent research could incorporate more disaggregated, country-specific uncertainty indices and a broader sample of emerging and frontier markets. While the asymmetric TVP-VAR captures time-varying parameters, it may not fully reflect structural regime shifts; integrating Markov-switching mechanisms or regime-dependent extensions would offer richer dynamics. Future work could also incorporate alternative uncertainty contexts such as geopolitical risk, monetary policy uncertainty and ESG-based sustainability indicators. Practical implications The findings yield concrete implications for four stakeholder groups. For individual and institutional investors, CPU's role as a net shock transmitter implies that climate policy changes should be treated as a primary risk factor in portfolio diversification. For portfolio managers, the asymmetric spillover dynamics between positive and negative shocks call for direction-dependent hedging instruments such as climate options and ESG-focused derivatives, rather than symmetric hedging. For regulators and policymakers, cross-country spillover differences highlight the urgent need for harmonized global ESG reporting standards and climate disclosure requirements. For corporate managers, sustainability reporting should be positioned as a strategic legitimacy and value-preservation tool rather than a compliance cost. Social implications The study has broader social implications by demonstrating how climate- and ESG-related uncertainties propagate disproportionately to emerging markets, deepening cross-country financial inequalities. The evidence supports the case for harmonized global sustainability disclosure regimes that protect smaller economies from imported volatility. By clarifying how investors price climate-policy and sustainability information, the findings reinforce the public-policy value of transparent, comparable ESG reporting and credible climate governance. These insights contribute to public debate on equitable participation in the global green transition and on the social legitimacy of corporate sustainability practices. Originality/value By jointly analyzing CPU and ESGU within an asymmetric TVP-VAR connectedness framework, this study offers novel insights into the evolving interplay between climate- and ESG-related uncertainties and global stock markets. The findings highlight the asymmetry and time-varying nature of financial market responses, providing valuable implications for investors, policymakers and regulators in managing systemic risks associated with climate and ESG uncertainties.