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Impact of climate risk on clean water investments: Does crude oil act as a hedge?
Linköping University, Department of Management and Engineering, Economics. Linköping University, Faculty of Arts and Sciences. Department of International Business, University of Dhaka, Bangladesh.ORCID iD: 0000-0002-8910-7925
School of Accounting and Finance, University of Vaasa, Wolffintie 32, Vaasa 65200, Finland.ORCID iD: 0000-0003-4971-3258
Linköping University, Department of Management and Engineering, Economics. Linköping University, Faculty of Arts and Sciences.ORCID iD: 0000-0002-1798-8284
Linköping University, Department of Management and Engineering, Economics. Linköping University, Faculty of Arts and Sciences. School of Economics and Business, Norwegian University of Life Sciences, Ås, Norway.
2026 (English)In: Journal of Open Innovation: Technology, Market, and Complexity, ISSN 2199-8531, Vol. 12, no 1, article id 100708Article in journal (Refereed) Published
Abstract [en]

Water investments play an increasingly important role in sustainable finance, yet their response to climate policy uncertainty (CPU) under different market conditions remains poorly understood. This study examines the regime-dependent influence of CPU on water equity performance using monthly data for the First Trust Water ETF (FIW) and the Invesco Global Water ETF (PIO) from 2007 to 2024. A Markov regime-switching VAR framework is employed to capture nonlinear dynamics that conventional linear models may overlook. The results reveal two distinct volatility regimes with contrasting CPU effects. In low-volatility periods, CPU is associated with higher returns, indicating that climate-policy developments can signal investment opportunities when markets are stable. During high-volatility periods, CPU exerts a negative influence, consistent with rising discount rates applied to long-term water-infrastructure cash flows. Regime persistence differs across ETFs: FIW exhibits frequent, short-lived transitions, whereas PIO displays more persistent states. A complementary DCC-GARCH analysis shows that crude oil provides a relatively cost-effective hedge for water portfolios, while technology ETFs offer substantially weaker hedging performance. Overall, the findings highlight the importance of regime-sensitive portfolio strategies for investors and emphasize that policymakers should consider prevailing market conditions when communicating climate initiatives. The study demonstrates that nonlinear models are essential for uncovering climate-finance linkages that linear approaches fail to detect. 

Place, publisher, year, edition, pages
Elsevier, 2026. Vol. 12, no 1, article id 100708
Keywords [en]
Climate Risk, Water Investing, Sustainability, Climate Policy
National Category
Business Administration
Identifiers
URN: urn:nbn:se:liu:diva-221541DOI: 10.1016/j.joitmc.2025.100708OAI: oai:DiVA.org:liu-221541DiVA, id: diva2:2042305
Available from: 2026-02-27 Created: 2026-02-27 Last updated: 2026-02-27
In thesis
1. Readiness, Risk, and Reform: A Dynamic Triad of Sustainability
Open this publication in new window or tab >>Readiness, Risk, and Reform: A Dynamic Triad of Sustainability
2026 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

Sustainable development depends not only on economic, social,and environmental objectives, but on the systemic capacity of societies to anticipate uncertainty, absorb shocks, and adapt through purposeful reform. This dissertation advances a unifying conceptual framework,the dynamic triad of readiness, risk, and reform, to explain how systemic capacity contributes to sustainable outcomes, how its effectiveness is conditioned by uncertainty, and how it is reshaped through reform across levels of analysis. Readiness denotes the accumulated institutional, technological, financial, and social capacities that enable anticipation and response. Risk captures multidimensional uncertainty and vulnerability that condition their effectiveness. Reform represents structural interventions triggered by revealed weaknesses. Their interaction forms a continuous feedback loop shaping resilience and long-term sustainability outcomes.

Adopting a multi-scalar perspective, the dissertation examines these dynamics at the micro (firm), meso (industry and market), and macro (national) levels across five empirical studies. Using diverse econometric approaches, including survival analysis, regimeswitching VAR models, threshold regressions, triple-difference designs, mediation and moderation analysis, and panel Granger causality tests; the research investigates renewable energy innovation,climate finance and clean water investment, firm survival during COVID-19, and post-crisis safety reforms in global value chains.

The findings demonstrate that readiness is multidimensional and context dependent. At the firm level, innovation capabilities significantly increase survival probabilities during systemic shocks. At the market level, climate policy uncertainty exhibits nonlinear and regime-dependent effects: risk constrains investment under high volatility but enables strategic positioning under stable conditions. At the national level, systemic readiness promotes renewable energy innovation by reducing socio-economic vulnerability and strengthening R&D investment. These effects are strongest among innovation leaders, with R&D serving as the dominant channel in middle-income countries. However, these benefits are regime dependent: overall, economic, and social readiness promote renewable energy innovation under low uncertainty, but their positive influence weakens beyond the uncertainty threshold. In contrast, governance readiness exerts a negative effect that intensifies as uncertainty increases. Bidirectional dynamics between core and enabling technologies confirm their co-evolution within national innovation systems and highlight the risk of widening global innovation disparities if readiness accumulation remains uneven. Crisis-induced reforms can strengthen institutional capacity but may also impose adjustment burdens that reshape market entry and dynamics.

Overall, the dissertation shows that sustainable development hinges on proactive capacity building, strategic risk management, and carefully designed reform processes. By integrating insights from institutional economics, sustainability transitions, and financial instability theory; the study contributes an analytical framework for understanding resilience in an increasingly uncertain world.

Place, publisher, year, edition, pages
Linköping: Linköping University Electronic Press, 2026. p. 19
Series
Linköping Studies in Arts and Sciences, ISSN 0282-9800 ; 938
Keywords
Innovation, Readiness, Risk, Reform, Export dynamics
National Category
Economics
Identifiers
urn:nbn:se:liu:diva-221540 (URN)10.3384/9789181185041 (DOI)9789181185034 (ISBN)9789181185041 (ISBN)
Public defence
2026-04-01, ACAS, A-huset, Campus Valla, Linköping, 13:15 (English)
Opponent
Supervisors
Available from: 2026-02-27 Created: 2026-02-27 Last updated: 2026-03-10Bibliographically approved

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Bhuiyan, Mohammad Rakib UddinAhmed, AliUddin, Gazi Salah

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