Governance-led risk transmission in the policy-innovation-energy nexus: evidence from China (2015–2024)

Systemic risk in sustainable finance increasingly arises from the interaction between environmental governance, green innovation, and clean energy markets, yet contagion channels linking these sectors remain insufficiently understood. This study examines whether Chinese environmental governance equities act as systemic transmitters of risk to green innovation and global alternative energy markets, particularly under extreme market states. A factor-purged Quantile VAR connectedness framework is applied to daily data from 2015 to 2024, covering six Chinese environmental governance equity indices, a Green Power Research and Development index, and the S&P Global Clean Energy Index. Results show that total connectedness is higher in the tails than at the median, indicating that diversification benefits weaken during extreme market conditions. Governance-led transmission is state-dependent: atmospheric governance and solid waste treatment transmit shocks in the lower tail, broad environmental governance dominates the median state, and wastewater treatment emerges as an important transmitter in the upper tail. Green innovation primarily absorbs shocks in downside and normal states but transitions to a transmitter during optimistic market conditions. The S&P Global Clean Energy Index provides no stable safe-haven function, switching between receiver and transmitter roles across quantiles. These findings establish Chinese environmental governance as a state-contingent systemic driver of global clean energy risk, extending quantile connectedness analysis to the policy–innovation–energy nexus, with implications for tail-aware portfolio design, systemic risk monitoring, and coordinated green finance policy.