From climate hazards to financial stress: analyzing the systemic effects of extreme weather events

We investigate the link between extreme weather events and systemic financial stress, paying particular attention to short-term dynamics and event severity. Unlike most research that emphasizes transition risks, our study focuses on physical hazards,such as storms, floods, wildfires, and extreme temperatures. Using daily data from 11 countries between 1990 and 2025 and analyzing 1,466 extreme weather episodes, we find evidence that wildfires are significantly associated with short-term increases in systemic stress indicators, such as the Composite Indicator of Systemic Stress (CISS). Over time, the wildfire effect has become more immediate, shifting from a response lag of several days in the ΔCISS to an almost same-day impact. Nevertheless, none of the weather-related categories examined have triggered systemic shocks exceeding destabilizing thresholds, underscoring the resilience of financial systems to climate-driven disruptions.