CLIMATE UNCERTAINTY AND FINANCIAL MARKETS: A THEMATIC LITERATURE REVIEW

Unofficial AI-generated summary based on the public title and abstract. Not an official translation.

🔬研究者:GX researchers can use this review as a comprehensive overview of the link between climate uncertainty and financial markets, identifying gaps and trends.

🏢実務担当者:Corporate sustainability teams can understand how climate uncertainty affects investor behavior and asset pricing, informing their disclosure and strategy.

🏛政策担当者:Policymakers can note the evidence that climate risk impacts financial stability, supporting the case for mandatory climate disclosures.

Climate uncertainty and financial markets | www.ejsr.cloud(Cagli et al.).Investors tend to hold onto high ESG-rated stocks and sell low-rated ones, which affects stock prices (Naseer et al.).Today's investment decisions are no longer based only on financial indicators; they also reflect sustainability criteria, environmental impact, and corporate responsibility.Demand for sustainable investments continues to grow worldwide, especially in emerging markets (Belcaid).The effects of climate change are not the same everywhere.They differ by region, sector, and type of event.Even within the energy sector, climate uncertainty affects green and brown energy sources differently (Bouri et al. "Climate Policy Uncertainty and the Price Dynamics of Green and Brown Energy Stocks").For investors and policymakers, understanding and managing climate-related financial risks is not only an environmental responsibility but also essential for long-term financial stability.Against this background, this paper reviews the empirical and theoretical literature on climate uncertainty and financial markets.The review is organized around five themes: crossborder market dynamics, sectoral effects, green versus fossil fuel assets, diversification and hedging opportunities and investor behavior.The paper is structured as follows.Section 2 covers the key concepts of climate uncertainty and climate risk, and discusses the financial theories that help explain their market effects.Section 3 presents the thematic literature review.Section 4 summarizes findings and discusses implications for research, policy, and investors.Section 5 concludes the paper. Theoretical Background on Climate Risk and Financial Markets Climate Change, Climate Uncertainty, and the Governance ArchitectureHuman activity has significantly accelerated climate change, making it faster, more damaging, and harder to predict than ever before.Rising temperatures, more frequent storms, longer droughts, wildfires, and rising sea levels have made climate change a major economic and social challenge, not just an environmental one.From an economic perspective, climate change is a large-scale negative externality; the social costs of carbon emissions are not reflected in market prices, which creates a market failure.Governments need to respond through carbon pricing, environmental regulation, and green subsidies.But the timing and scale of these responses are uncertain, which makes climate change a significant source of financial instability.Unlike shocks that affect individual firms, climate disruptions can affect many sectors, regions, and financial institutions simultaneously, making simple diversification strategies insufficient.

• openalex https://doi.org/10.30546/2616-4418.33.2025.0722first seen 2026-05-05 19:13:37