Financial risk under the shock of global warming: Evidence from China

Abstract

AbstractThe economic and financial risks of global warming have become a hot issue of academic interest. This article analyzes global warming, financial risk, and the economic statistics of 30 provinces in China from 2010 to 2020 as a sample to assess the influence of the severity of global warming on financial risk. Global warming is found to affect financial risk and to have a substantial favorable influence on the amount of financial risk. Global warming also has significant effects on households, enterprises, financial institutions, and governments. There is heterogeneity in the effects of climate variation on financial risk. Global warming will cause a greater accumulation of financial risk in economically developed regions. Additionally, it will lead to financial risks by causing a decline in the incomes of residents, a decline in the profits of enterprises, growth in the number of loans that financial institutions consider to be nonperforming, and a widening of the gap between government revenue and expenditures. All of these effects will have an adverse domino effect on the economy. To reduce the financial risks caused by global warming, countermeasures are being offered to ensure social cohesion, conduct risk stress testing, create risk mitigation instruments, and encourage environmentally responsible development. This paper discusses policies and provides policymakers with recommendations on how to cope with the systematic financial risks induced by climate variation.