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Carbon Pricing, Capital Reallocation, and Financial Stability: A Sustainability Accounting Perspective on Market Signals and Climate-Related Risks
Abstract
This chapter analyzes the impact of carbon pricing on capital markets and financial stability through the lens of sustainable accounting. Carbon taxes and emissions trading systems alter cash flow, risk premium, and tail risk expectations, hence influencing stock valuation and credit pricing. The chapter subsequently correlates physical and transition risks with accounting materiality, illustrating the impact of climate on impairment, provisions, useful-life estimations, fair value inputs, and disclosures. It employs carbon price trajectories, emissions scopes, intensity metrics, internal carbon pricing, and result indicators such as cost of capital to assess policy stringency and business vulnerability and responsiveness, therefore rendering policy signals decision-useful. It demonstrates how disclosure mandates and assurance mitigate information asymmetry, facilitating systematic repricing, capital reallocation, and macroprudential supervision of climate-related risks during the net zero transition.
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