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Identification of systemic financial risks: The role of climate risks

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  • Zhu, Wenqiang
  • Li, Shouwei
  • Su, Hongyu
  • Yang, Sitong

Abstract

Identifying and assessing systemic financial risks (SFRs) is crucial for economic stability. However, whether climate risks (CRs) are significant sources of SFRs remains unclear. In this study, we constructed text-based indicators of climate physical risk, climate transition risk, and climate policy uncertainty based on ten newspapers published in China. The indicators were integrated with the constructed SFR index to investigate the differential impacts of CRs on SFRs. We present substantial empirical evidence of significant associations between CRs and SFRs. The three climate-included SFRs show differential effects on Granger causality, regime switches, and their additional factors. The findings indicate that climate policy action could significantly predict SFRs.

Suggested Citation

  • Zhu, Wenqiang & Li, Shouwei & Su, Hongyu & Yang, Sitong, 2025. "Identification of systemic financial risks: The role of climate risks," Finance Research Letters, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finlet:v:74:y:2025:i:c:s1544612324017562
    DOI: 10.1016/j.frl.2024.106727
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    Cited by:

    1. Hu, Xin & Zhu, Bo, 2025. "Do climate risks matter for intersectoral systemic risk spillovers? Evidence from China," Finance Research Letters, Elsevier, vol. 75(C).

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    More about this item

    Keywords

    Climate physical risk; Climate transition risk; Climate policy uncertainty; Systemic financial risk; Risk identification;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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