Sustainability uncertainty and stock prices : Conditional effects across regulatory regimes

This paper examines how stock markets price ESG-based sustainability uncertainty (ESGUI)as sustainability disclosure shifts from voluntary reporting to mandatory compliance. Using monthly data for 23 markets from 2002 to 2025, I estimate dynamic responses of real stock prices to country-specific and global ESGUI shocks. ESGUI is priced differently from traditional uncertainty measures such as economic policy uncertainty and geopolitical risk. During voluntary disclosure periods, country-specific ESGUI shocks raise developed-marketstock prices, with a median 12-month response of 0.54 standard deviations, equivalent to about 11.88% in price terms. These positive responses survive innovation extraction and joint uncertainty controls. Global ESGUI shocks generate larger effects, consistent with systematic transition-related pricing. However, subperiod and country-specific timing tests show that ESGUI effects turn negative when mandatory disclosure becomes salient, especially in developed European markets. Environmental and social uncertainty drive positive responses, indicating transition opportunities. In contrast, governance uncertainty is priced negatively, consistent with agency risk, oversight quality, and disclosure credibility channels. Thus, sustainability uncertainty prices transition opportunities in some regimes and compliance/oversight risk in others.