The relative size of economic activity over natural capital has increased exponentially since World War II. We have reached a point where our economy is no longer a marginal phenomenon in our planet. Since this realisation of the endogeneity of the environment in economic processes, economists have developed a new academic field, namely Environmental Economics. Yet, the realisation among financial economists of this economic imperative has only been recent and mostly focused around global warming. In this thesis, I discuss a new emerging academic field, namely Climate Finance. I first provide a systematic review of the literature in this new field and discuss some of its branches. I then argue that, in light of the massive externality of carbon emissions, some core tenets of financial economics may need to be reconsidered. I show that climate change is already having a profound impact on financial markets, specifically on how we value assets, how we assess financial risks and, in turn, how we structure regulatory frameworks. Finance is a necessary condition for the net zero carbon transition. The reconsideration of some of these tenets may be essential to empower the financial system to deliver on mitigating global warming.
financial economics
,climate finance
,climate change
