Study on the Mechanism of Climate Change Impact on Financial Stability and Response

Asia-Australia Business School, Liaoning University, 210000 Shenyang city in Liaoning province, China

^* Corresponding author: s8117699@live.vu.edu.au

Abstract

This paper presents a summary of recent research on the impact of climate risk on the financial system, with a focus on the relationship between physical and transition risk. At the macroeconomic level, climate risk has a significant impact on overall economic growth and volatility. Research has shown that physical and transition risks arising from climate change interact with each other. Climate physical risks exacerbate the level of economic volatility by affecting the market value of the underlying assets, while climate transition risks impact the financial sector by affecting the level of carbon emissions. At the microeconomic level, climate risks affect various industries to varying degrees. This study offers specific ideas on how to address climate change from the perspectives of international cooperation, government regulation, and technical innovation based on a review of the literature. Governments should actively participate in international climate negotiations and reach agreements. The government should provide legal guarantee and normative basis for responding to climate change by formulating and implementing a series of laws and regulations related. The nation should boost the use of digital technology, encourage the circular economy and sustainable agriculture models, and spend more in the research and development of low-carbon technologies.