Geopolitical risk and renewable energy: The role of green bonds

Abstract

Green bonds are financial instruments that enable the analysis of the impacts of geopolitical turbulence on investments in renewable energy. This study aimed to explore the relationship between these factors, considering the geopolitical risk index developed by Caldara and Iacoviello. Through a PRISMA review, four central themes were identified: hedging strategies, asset/portfolio diversification, volatility dynamics/transmission, and the energy transition. Many of the articles addressed more than one theme. However, the most and least frequently addressed topics were asset/portfolio diversification and the energy transition, respectively. The association between geopolitical risk, green bonds, and renewable energy was divided into three categories: risk management, sustainable development, and market positioning. The results of this study are relevant in two respects. First, there is a shortage of research focusing on the theme presented in this article. Second, the present study fills a gap identified in the literature while contributing to a better understanding of the impact of geopolitical risk on an instrument that operates in the context of the energy transition, climate change, and sustainable development.