Natural resources and green economic recovery in responsible investments: Role of ESG in context of Islamic sustainable investments

This study investigates the dynamic interactions between fossil fuel-free, ESG, and carbon-efficient investments and government stimulus in Europe before and after COVID-19. Using time-varying analysis, results show ESG investments benefited most from stimulus packages when looking at average performance. However, separating pre- and post-pandemic periods revealed more nuanced results. Pre-COVID, least-volatile carbon-efficient companies spilled over to stimulus beneficiaries, but post-COVID they benefitted from them. Islamic-screened sustainable investments were net receivers regardless of period. In contrast, conventional ESG and fossil fuelfree industries behaved oppositely to low-risk eco-friendly firms, transmitting benefits to stimulus recipients. Causality tests confirmed spillover analysis, showing nonlinear causality from stimulus recipients to Islamic investments across conditions and low-risk climate-conscious investments at lower quantiles. In summary, this study provides new perspectives on chain reactions between government-supported firms and purpose-driven enterprises, helping recovery planners and policymakers make more informed sustainable investment decisions.