Climate change shocks pose a threat to the stability of financial systems. This study examines the influence of climate risk on systemic risk in the Chinese market via an extreme risk spillover network. Moreover, we construct climate risk indices for physical risk (abnormal temperature) and transition risk (climate policy uncertainty). We demonstrate a significant increase in systemic risk due to climate risk, which can be attributed, in part, to investor sentiment. Furthermore, institutional investors can mitigate the adverse impact of climate risk. Our findings suggest that policymakers and investors need to exercise greater vigilance in addressing climate-related adverse effects.
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