Climate Risk and Financial Stability: A Systematic Literature Review

The study provides a systematic literature review that synthesizes the studies conducted on climate risk and financial stability to understand the relationship between the two and identify the existing research gaps. It fills a gap in the literature on understanding the broader dimensions of these two variables. The study is structured using the Planning, Operationalizing, Writing, Embedding, and Reflecting (POWER) framework, and the review is based on the Theory, Context, Characteristics and Methodology framework, which outlines major theories, context of development, characteristics and methods used. An analysis of 107 documents extracted from the Scopus and Web of Science databases suggests that the research volume has increased, primarily originating from developed regions, with a focus on theories such as asset pricing theory, network theory and modern portfolio theory. The study identifies four themes highlighting the use of quantitative techniques as the most employed methods in the study. The findings contribute to the work of scholars and policymakers.