Financial Meteorology and Climate Risk: An Interdisciplinary Perspective on Physical and Transition Risks

Climate change has increased the frequency and intensity of weather- and climate-related hazards, posing growing challenges to economic systems and financial stability. Recent assessments indicate that a large share of global economic losses and insurance claims can be attributed to meteorological and climate-related events. These developments have motivated increasing attention to climate risks within financial markets and regulatory frameworks. However, approaches to climate risk assessment often remain fragmented, with limited integration between physical climate processes and financial risk transmission mechanisms.

This research reviews recent research progress in financial meteorology, an interdisciplinary research area that combines atmospheric science, economics, and finance to examine the interactions between meteorological conditions and financial systems. We summarize the main pathways through which climate and weather risks affect financial institutions, distinguishing between physical risks, arising from extreme events and long-term climatic changes, and transition risks, associated with policy, technological, and market adjustments related to climate mitigation. These risks can propagate from the real economy to the financial sector through impacts on production, asset values, credit quality, and insurance losses, potentially amplifying systemic vulnerabilities.

We further review advances in climate-related financial instruments and risk management practices, including weather index insurance, catastrophe bonds, weather derivatives, and climate-related financial disclosures. International experiences suggest increasing consensus on the importance of forward-looking climate risk assessment, stress testing, and standardized disclosure frameworks. At the same time, growing demand from financial institutions has accelerated the use of meteorological data and climate information in risk evaluation, asset pricing, and insurance design.

Finally, we identify key challenges and research needs in financial meteorology. These include limitations in data availability and consistency, insufficient representation of compound and extreme events in financial models, and mismatches between climate time scales and financial decision horizons. We argue that further integration of climate science and financial analysis is necessary to improve climate risk assessment and to support effective adaptation and risk management under ongoing climate change.