Abstract

Climate-related risks have ascended as a pivotal determinant exerting influence over financial markets and the stability of the global economy. This exhaustive examination evaluates the diverse financial ramifications associated with climate risk, delving into both physical and transition risks encountered by enterprises, investors, and policymakers alike. Qualitative research design was adopted utilizing a systematic literature review (SLR) approach. The methodology follows a structured framework for identifying, reviewing, and interpreting relevant research. Data were collected from academic journals, industry reports, policy papers, and regulatory guidelines. Major findings revealed that standardized climate risk disclosure frameworks, like the Task Force on Climate-related Financial Disclosures (TCFD), improve transparency and comparability of climate-related financial information. Also suggested is the integrating of the assessments into credit risk evaluations and portfolio strategies which improves resilience against both physical and transition risks, and that regions investing in climate-resilient technologies and materials experience fewer disruptions and lower costs associated with climate impacts. Study recommended among others, that; financial institutions should incorporate climate risk assessments into all aspects of financial decision-making, including credit risk evaluations, asset management, and portfolio strategies and also encourage public and private investment in climate-resilient infrastructure, particularly in regions vulnerable to physical climate risks. This review offers valuable perspectives for investors, policymakers, and scholars, underlining the imperative for more robust financial models and policy instruments that incorporate considerations of climate risk into the decision-making process.