Dissecting the financial impact of climate risk

The studies on climate financial risk have gradually increased in recent years. However, there is a wide variation in the conclusions regarding the extent to which climate risk impacts individual markets or aspects of the financial system. This study dissects the impacts of climate risk on the financial market, investment behaviour and financial stability using a meta-analysis, incorporating 1389 estimates from 70 primary studies. The findings indicate that, firstly, climate risk has a weak to moderate positive impact on the stock and bond markets, while it has a weak negative impact on the real estate market. Meanwhile, it has a weak negative impact on investment behaviour and financial stability. Secondly, in comparison to climate physical risk, climate transition risk has a greater influence on financial markets (except for real estate) and investment behaviour, with no discernible distinctions in their impact on financial stability. Lastly, the results of heterogeneity source analysis suggest that the primary contributors to the heterogeneity observed in climate finance literature are variations in key variable measures, the methodologies used in literature studies, and temporal characteristics (year of publication and sample period). These findings remain robust, accounting for publication bias.