Work

Climate risk and biodiversity exposure

Year: 2025

Type: article

Abstract: • Climate policies initially increase financial stress due to uncertainty and adjustment costs. • Over time, as markets adapt, these policies reduce financial stress, enhancing stability. • Persistent volatility spillovers indicate strong interconnectedness among financial systems. • Climate-related shocks are systemic, affecting multiple markets simultaneously. This study investigates the impact of climate and biodiversity-related risks on financial stress in the EU, USA, and UK using the DCC-MGARCH model. The results indicate that stringent environmental policies initially increase financial stress in the short term, however, these effects diminish over time, leading to reductions in stress by promoting sustainable growth. Persistent volatility spillovers across regions highlight the interconnectedness of global financial systems and the systemic nature of climate-related shock. Although there is short-term volatility, markets generally stabilize as policy impacts become evident.

Source: Economics Letters

DOI: 10.1016/j.econlet.2025.112725

Authors: Ernest Owusu Boakye, Kari Heimonen

Institution: University of Jyväskylä

Language: English

Topic: Sustainable Finance and Green Bonds

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: hybrid

Estimated APC paid: $3,030