Finance and the Low-Carbon Transition: Implications for Market Valuation and Investor Behaviour

The shift to low-carbon capital resources has significant implications. Our comprehensive macroeconomic framework, considering high-carbon and low-carbon tangible assets, reveals that adopting low-carbon practices induces oscillations in both the macroeconomy and financial sphere. Examining the impact of financial market sentiments on the transition trajectory, we highlight the pivotal role of the financial sector. Despite lower operational costs of low-carbon technologies, investor behavior favors established technologies. Our analysis shows that increased ’climate indifference’ can prolong the transition. Therefore, we emphasize the importance of climate impact disclosures in finance and the need for strategies to assist investors in mitigating uncertainty.