How Does Climate Policy Uncertainty Affect Financial Stability During the Low-Carbon Transition?

Against the macro backdrop of the global low-carbon transition and sustainable development, climate policy uncertainty (CPU) has become a new source of risk threatening financial stability and sustainable development. This paper constructs a dynamic financial conditions index integrating monthly GDP and multi-layer financial information and explores the dynamic effects of CPU from three dimensions: aggregate financial conditions, asymmetric responses, and directional tail-risk transmission. The results reveal that CPU shocks exhibit pronounced time-varying effects. Financial conditions tighten in the early stage; adverse impacts gradually weaken after 2017, with partial improvement observed in certain periods. The financial system exhibits notable short-run sensitivity to upward CPU shocks, while long-run asymmetric effects remain insignificant. CPU exerts only transient effects on aggregate tail-risk connectedness, yet persistently strengthens risk spillovers from financial markets to the real economy, accompanied by delayed reverse feedback from the real economy. These findings indicate that financial vulnerability during the low-carbon transition is reflected more in the direction and timing of risk transmission than in system-wide synchronized risk. To maintain the financial system’s sustained support for green investment and real-economy adjustment, macroprudential supervision should shift from aggregate-risk monitoring to precise identification of risk sources, transmission directions, and feedback windows.