Mohammad Enamul Hoque, Syed Mabruk Billah, Burcu Kapar, Rafayet Alam
With the evolving nature of climate change threatening systemic investment risk, investors are constantly searching for assets that are resilient to climate risk and hold environmental principles. Given these factors, the study evaluates the hedging capabilities of green sukuk versus conventional green bonds against physical and transition climate risks, acknowledging their structural divergence. We employ novel quantile-on-quantile connectedness and quantile-on-quantile regression approaches to identify hedging and safe-haven attributes across climate risk levels. To achieve this, we use regional and country-level green bond indices, and we construct our green sukuk index using the methodology of Billah and Adnan (2024). Our analysis reveals the potential of conventional green bonds and green sukuks serving as a hedge and safe haven against physical and transition-related climate risks. However, both approaches reveal that green sukuks are better candidates than green bonds as a hedge and safe haven against climate risks, especially in the turbulent periods. These findings highlight that investors could consider green sukuk and green bonds as climate-resilient assets to utilize for diversifying portfolios and for policymakers to mitigate climate risk. © 2026 The Authors
BRAC Business School, BRAC University, 66 Mohakhali, Dhaka, 1212, Bangladesh; Faculty of Economics and Business, Universitas Negeri Padang, Padang, Indonesia; Department of Accounting and Finance, College of Business Administration, Prince Mohammad Bin, Fahd University, Al Khobar, Saudi Arabia; Department of Accounting and Finance, University of Wollongong in Dubai, Dubai, United Arab Emirates; Department of Finance and Economics, University of Tennessee at Chattanooga, Chattanooga, 37403, TN, United States
