Climate uncertainty and marginal climate capital needs

Abstract

The paper shows that climate policy uncertainty affects the future marginal capital shortfall of global financial firms, and 11.28% more capital will be needed under a severe climate scenario. After the signing of the Treaty of the Paris Agreement, the effect has been stabilized at the global level. However, there are strong indications that the USA's withdrawal from the agreement increased the climate capital needs for US firms. Our results have significant implications for regulators, as they are related to the stability of the financial system under a significant climate stress scenario.