Modeling the Nexus Between Climate Risk, Energy Consumption, and Financial Market Performance in Emerging Countries

Abstract This paper examines the link between climate risk, energy consumption, and financial market performance in a sample of emerging countries over the period 2000–2024. The objective is to model the dynamic interactions between these three dimensions, in order to understand the extent to which energy dependence and exposure to climate risks influence the stability and resilience of emerging financial markets. We use a panel data covering a representative group of emerging countries to examine the nexus among climate risk, energy consumption, and stock market performance. The estimated models are based on a panel VAR to capture endogenous dynamic effects, on DCC‐GARCH model to analyze volatility and conditional correlations, on panel cointegration tests for long‐term relationships, and on structural break models to integrate exogenous shocks (2008 financial crisis, COVID‐19, war in Ukraine). The results show that climate risk negatively affects stock market performance in emerging countries. The dependence on fossil fuels increases financial vulnerability to climate shocks. Moreover, the increased use of renewable energy mitigates this impact and strengthens the resilience of financial markets. Finally, the intensity of the relationship varies depending on the degree of financial and energy development of emerging countries.