Bridging the Climate Finance Gap: Behavioral and Market Barriers to Efficient Climate Risk Pricing in Emerging Economies

Ashi Perveen
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Ashi Perveen: Department of Economics, Near East University, Islamabad, Punjab, Pakistan

International Journal of Research and Innovation in Social Science, 2025, vol. 9, issue 6, 6392-6426

Abstract: This research explores how behavioral and market barriers jointly shape the pricing of climate risk in emerging economies, using a mixed-methods approach combining empirical asset pricing analysis, behavioral experiments, and conceptual policy modeling. The empirical analysis finds that climate risks are only weakly priced into capital costs, with sovereign risk and institutional weaknesses dominating in many markets. The behavioral experiment shows that interventions like loss framing, salience nudges, and green defaults significantly shift investment choices toward climate-resilient assets. Conceptual modeling suggests that combining improved disclosure frameworks with behavioral design tools delivers the greatest gains in green capital flows. The research contributes to theory by integrating behavioral finance with climate risk analysis, to policy by offering targeted recommendations for regulators, and to practice by identifying scalable ESG design strategies. Despite data and modeling limitations, the study opens paths for future research, including multi-country studies, advanced quantitative modeling, and field trials of behavioral-financial interventions.

Date: 2025
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