Identification of systemic financial risks: The role of climate risks

Wenqiang Zhu, Shouwei Li, Hongyu Su and Sitong Yang

Finance Research Letters, 2025, vol. 74, issue C

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.

Keywords: Climate physical risk; Climate transition risk; Climate policy uncertainty; Systemic financial risk; Risk identification (search for similar items in EconPapers)
JEL-codes: C32 C80 G10 Q54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:74:y:2025:i:c:s1544612324017562

DOI: 10.1016/j.frl.2024.106727

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