Green forest intertwined with financial charts, representing sustainable finance.

Green Finance Under Pressure: Can Monetary Policy Save Sustainable Investments?

Jordan Keane in Business & Economy August 2025 • 3 min read.

"Navigating the Complex Interplay of Monetary Policies and Green Financial Markets for a Sustainable Future"

The world is increasingly focused on combating climate change, with nations worldwide adopting measures to reduce emissions and transition to low-carbon economies. This shift has spurred significant interest in environmentally friendly financial instruments, like green bonds and equities, attracting investors keen on supporting sustainable development.

However, this burgeoning green finance market faces uncertainties, particularly concerning the interconnection between green assets and the broader financial landscape. Monetary policy shocks, long recognized as a critical source of instability in financial markets, can significantly impact the still-developing green sector. Understanding these impacts is crucial for fostering sustainable investments, enhancing policy effectiveness, and building investor confidence.

Recent research highlights the need to examine how monetary policy influences the connectedness within the green financial market. Analyzing the relationships between different green assets—bonds and equities—and considering various market dynamics, such as returns, volatility, and higher-order moments like skewness and kurtosis, can provide a more nuanced understanding of the risks and opportunities at play.

Decoding the Multi-Moment Connectedness Network

Green forest intertwined with financial charts, representing sustainable finance.

To better understand the intricate dynamics within the green financial market and its response to monetary policies, a novel approach is needed. Traditional methods often analyze market dynamics separately, failing to capture the complete picture. A multi-moment connectedness network approach integrates various market indicators to provide a more holistic view.

This network considers several key elements:

Returns: The basic gains or losses from green investments.
Volatility: How much and how quickly prices change.
Skewness: The asymmetry of the return distribution, indicating potential for unexpected large losses or gains.
Kurtosis: The "tailedness" of the distribution, reflecting the likelihood of extreme events.

By examining these factors simultaneously, the multi-moment network offers a comprehensive understanding of the uncertainties and interconnectedness within the green finance market.

Navigating Green Finance for a Sustainable Tomorrow

Understanding the interplay between monetary policy and green finance is paramount for policymakers and investors alike. By carefully considering the multi-moment connectedness network, stakeholders can better navigate the complexities of this evolving landscape, fostering sustainable economic development and financial stability for a greener future.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.1016/j.eneco.2024.107739,

Title: Monetary Policies On Green Financial Markets: Evidence From A Multi-Moment Connectedness Network

Subject: econ.gn q-fin.ec

Authors: Tingguo Zheng, Hongyin Zhang, Shiqi Ye

Published: 04-05-2024

Everything You Need To Know

What is the primary focus of green finance and how is it connected to climate change initiatives?

Green finance focuses on environmentally friendly financial instruments, such as "green bonds" and "equities." It's directly connected to climate change initiatives because it attracts investors who want to support sustainable development and the transition to low-carbon economies. The aim is to channel funds into projects and companies that contribute to reducing emissions and promoting environmental sustainability.

How can monetary policy shocks affect the green finance market?

Monetary policy shocks can introduce instability into the green financial market, which is still developing. These shocks can impact "green assets" like "bonds" and "equities". The effects can be significant, influencing investor confidence and the overall stability of sustainable investments. Understanding these impacts is essential for policymakers and investors to navigate the evolving landscape of "green finance".

What is a multi-moment connectedness network and why is it important for understanding the green finance market?

A multi-moment connectedness network is a novel approach that integrates various market indicators to provide a comprehensive view of the green financial market. It's important because traditional methods often fail to capture the complete picture by analyzing market dynamics separately. The network considers factors like "returns," "volatility," "skewness," and "kurtosis" to offer a more nuanced understanding of the uncertainties and interconnectedness within "green finance" and its response to monetary policies.

In the context of green finance, what do "returns," "volatility," "skewness," and "kurtosis" represent?

"Returns" represent the basic gains or losses from "green investments". "Volatility" indicates how much and how quickly prices change. "Skewness" describes the asymmetry of the return distribution, indicating the potential for unexpected large losses or gains. "Kurtosis" reflects the "tailedness" of the distribution, reflecting the likelihood of extreme events. Examining these factors simultaneously allows for a comprehensive understanding of the risks and opportunities within the "green finance" market.

How can stakeholders use the understanding of monetary policy and green finance to foster a sustainable future?

By carefully considering the multi-moment connectedness network, policymakers and investors can better navigate the complexities of the evolving "green finance" landscape. This approach helps in making informed decisions, fostering sustainable economic development, and ensuring financial stability. Understanding the interplay between monetary policy and "green finance" is paramount for achieving a greener and more sustainable future. This includes actively managing risks associated with "green bonds" and "equities" in response to monetary policy changes.