Impact of Climate-Related Risks on Economic Uncertainty and Global Financial System Stability

This research investigates how climate-induced risks influence economic stability and the global financial system. The objective is to comprehend the extent of the impact on various sectors and geographical regions, the mechanisms through which these risks disseminate within financial markets, and the interconnections among them. We discern critical patterns and ramifications by systematically reviewing contemporary literature from prominent economic, financial, and climate science journals. The results indicate that climate risks exert a substantial economic influence—return on investments in agriculture, energy, and real estate decline by 2.3%, 1.8%, and 1.5%, respectively. Firms with elevated emissions encounter increased borrowing costs, while climate-related policies account for 18% of the volatility observed in stock markets. Furthermore, financial systems are exhibiting heightened vulnerability, with developed markets recording a 15-20% escalation in cross-market correlations and emerging markets experiencing a 25-30% surge in financial instability amid climate events. These findings emphasize the escalating interrelation between climate risk, economic uncertainty, and financial stability, thereby underscoring the imperative for enhanced risk management and global collaboration to tackle climate-induced financial challenges effectively.