Macroeconomic Drivers and Risk Behaviour of India’s Sustainability Indices

Abstract

In recent years, sustainable investing has moved from an ethical niche to a key pillar of global finance. Investors today look beyond profit alone, seeking portfolios that align with environmental and social goals. In this setting, understanding how sustainability-focused indices respond to economic shifts is crucial—especially in fast-growing markets like India.
This study examines the relationship between three macroeconomic indicators—inflation (CPI), money supply (M3), and the exchange rate (INR/USD)—and the performance of India’s two leading sustainability indices, the S&P BSE Carbonex and S&P BSE Greenex, during the period November 2012 to March 2024. The analysis employs the Autoregressive Distributed Lag (ARDL) framework along with the Error Correction Model (ECM) to explore long-run equilibrium and short-run dynamics. To capture volatility behaviour, GARCH, EGARCH, and TGARCH models are applied, and a CAPM-based comparison evaluates the risk–return performance against market benchmarks.
Findings confirm a stable long-run relationship between the sustainability indices and the selected macroeconomic factors. Inflation and exchange rate depreciation reduce index returns, while money supply growth enhances them. Volatility is persistent and asymmetric—negative shocks amplify market swings more than positive ones. The Greenex appears more stable than the Carbonex. Overall, the results show how India’s sustainable investments move with broader macroeconomic trends and highlight the need for steady monetary and exchange rate policies to foster a resilient green financial market.