Climate change and systemic risk of pan-financial institutions

JIA Kaiwei; DU Yunqing

Abstract：The frequent occurrence of extreme climate events worldwide has made climate change a common challenge faced by the international community today.The future climate will continue to warm and exacerbate global risks,triggering systemic risks and having far-reaching impacts on the global economy.As the boundaries of the financial system become increasingly blurred and the financial system becomes more generalized,the systemic risk contagion caused by climate change is becoming an important issue in the financial field.The paper measures climate change based on the degree and direction of deviation between actual temperature and historical average temperature during the same period.In response to the high-dimensional characteristics of pan financial institutions,the LASSO-VAR-DY model is used to construct a systemic risk contagion network of 147 listed institutions in China,including banks,insurance,securities,real estate,traditional energy,and new energy.The TO index is used to measure the systemic risk of each institution,and the impact of climate change on systemic risk under the scenario of pan financial institutions is empirically tested.The research results indicate that:① Temperature differences can exacerbate systemic risks in pan financial institutions;② The rise and fall of temperature have a significant asymmetric effect on the systemic risk of pan financial institutions,which is manifested as:the degree of exacerbation of systemic risk by temperature rise is significantly greater than the degree of mitigation of systemic risk by temperature drop;③ The impact of temperature on systemic risk in pan financial institutions exhibits industry heterogeneity,with temperature variables mainly affecting the banking,securities,real estate,and traditional energy industries.Based on empirical analysis results,this study starts with improving investors'awareness of climate finance,improving the climate finance regulatory system,and establishing a green,low-carbon,and pan financial system,providing suggestions and references for Chinese pan financial institutions to prevent and resolve systemic risks.