Environmental penalties and commodity market dynamics: Empirical evidence from Chinese listed companies and associated futures price volatility

As ecological civilization and dual carbon goals advance, environmental risk has emerged as a crucial factor influencing corporate performance and financial market stability. This study examines whether and how firm-level environmental penalty events transmit into commodity futures markets, identifying the underlying transmission mechanisms and moderating factors. We manually collect a comprehensive dataset of 982 environmental penalty announcements issued to Chinese A-share listed companies from 2010 to 2023, matching these with price data from the most directly linked commodity futures (e.g., industrial metals and agricultural products). The results show that environmental penalties significantly induce negative price reactions and elevate volatility in corresponding commodity futures markets. This effect is particularly pronounced for penalties in pollution-intensive industries. Within 1–3 trading days following a penalty announcement, cumulative abnormal returns of related futures contracts are significantly negative (p<0.01). Generalized autoregressive conditional heteroskedasticity model estimates confirm a notable increase in conditional volatility on the announcement day, accompanied by stronger risk-averse sentiment in the market. This study elucidates the micro-transmission mechanism of corporate environmental risk to commodity markets, offering investors a fresh lens for risk pricing and providing empirical support for regulators in constructing environmental risk monitoring systems. The findings carry important policy implications: (1) Commodity futures markets serve as an effective channel for pricing environmental risk; (2) regulators should consider cross-market spillover effects when designing environmental penalty disclosure policies; and (3) commodity market participants should incorporate environmental risk assessments into their trading strategies. These insights support enhancing financial markets’ role in the green transition.