Impact of Sustainable Energy Policies on European Stock Markets

The transition to sustainable energy sources has become a significant global concern in recent years, driven by growing environmental awareness and the need to mitigate climate change. In the European Union (EU), the commitment to a greener future is exemplified by introducing the REPowerEU initiative. This study investigates the impact of the REPowerEU program on European stock markets through an event study analysis. The REPowerEU initiative has had varying impacts on European stock markets. For example, although developed European stock markets experienced a significantly positive overall impact, emerging, EU, and non-EU stock markets encountered a negative impact. The cross-sectional analysis indicates the Climate Change Performance Index explains cumulative returns during the post -event window. The REPowerEU initiative led to positive investor sentiment in EU nations and countries with better climate change performance experienced positive abnormal returns. Results highlight the need for further research to understand the underlying factors driving the complex and diverse market responses to sustainable energy transition initiatives.