Climate change is associated with severe economic and financial risks and developing countries are particularly vulnerable to its effects, with evidence suggesting that countries most exposed face higher costs of capital, hindering investment and innovation. The challenge is to make the economic and financial risks associated with climate change transparent to business leaders, investors and other stakeholders, thereby impacting their decision making in environmentally friendly ways.

How does climate risk affect financial markets and do markets price it? How does it affect the macro economy and through which channels? The aim of the project is to construct a comprehensive database of climate-risk indicators. Based on these indices, the study analyses the macroeconomic and financial consequences of climate risks, both at the aggregate and the disaggregate level.

This research has the potential to change mindsets in business, finance and policy circles, which will contribute to solving the enormous challenges posed by climate change. Improving understanding of how climate risk affects financial markets will help policymakers respond to the threats it poses and create a regulatory framework to enable businesses and communities to manage the associated risks properly. This will help improve the lives, livelihoods and the environments of millions
of people.

The Unequal Economic Consequences of Carbon Pricing

Social Science Research Network (SSRN)

Date of Publication: February 15, 2021