Aligning clean energy innovations with the SDGs: sectoral dynamics of green bonds and sustainability-enhanced equities across market conditions

This study examines the dynamic interconnections among clean energy innovations, green bonds, and sectoral sustainability-enhanced equities, and their implications for advancing SDGs 7, 9, 11, 12, and 13. Using a Quantile VAR model and daily data from 31 October 2016–27 December 2024, we decompose systemic spillovers across extremely adverse (5th quantile), typical (50th quantile), and highly favourable (95th quantile) market conditions. Our results reveal a pronounced U-shaped pattern in systemic integration: the Total Connectedness Index surges to near-peak levels of approximately 89–95% at both tails, indicating that diversification benefits collapse during crises and market exuberance alike. Clean energy, green bonds, and utilities consistently act as net receivers, absorbing shocks transmitted by cyclical sectors. In contrast, industrials and consumer discretionary emerge as persistent net transmitters that drive systemic risk. Defensive sectors, notably healthcare and consumer staples, remain relatively resilient across all regimes. Importantly, green bonds, often perceived as safe-haven assets, exhibit state-dependent vulnerability to tail shocks, challenging their unconditional stabilising role. These findings imply that portfolio managers must abandon reliance on average-correlation diversification and instead adopt tail-risk-aware, dynamically allocated strategies. For regulators, the results underscore the need to integrate climate-aligned, quantile-dependent stress testing into macroprudential frameworks to safeguard financial stability during the low-carbon transition. By linking sectoral spillover dynamics to SDG outcomes, this research provides actionable guidance to enhance the resilience of sustainable finance ecosystems.Key Policy HighlightsSystemic connectedness rises to 89–95% during market stress and exuberance, sharply reducing diversification benefits.Industrial and consumer discretionary sectors are the main transmitters of shocks and should be prioritised in systemic risk monitoring.Clean energy, utilities, and green bonds primarily absorb shocks, making them vulnerable to spillovers from other sectors.Green bonds do not consistently act as safe-haven assets during extreme market conditions.Quantile-based climate stress testing and tail-risk-sensitive regulation can strengthen financial resilience and support SDGs 7, 9, 11, 12, and 13.