| Summary: | The relative size of economic activity over natural capital has increased exponentially since World War II. We have reached a point where our economy is no longer a marginal phenomenon in our planet. Since this realisation of the endogeneity of the environment in economic processes, economists have developed a new academic field, namely Environmental Economics. Yet, the realisation among financial economists of this economic imperative has only been recent and mostly focused around global warming. In this thesis, I discuss a new emerging academic field, namely Climate Finance. I first provide a systematic review of the literature in this new field and discuss some of its branches. I then argue that, in light of the massive externality of carbon emissions, some core tenets of financial economics may need to be reconsidered. I show that climate change is already having a profound impact on financial markets, specifically on how we value assets, how we assess financial risks and, in turn, how we structure regulatory frameworks. Finance is a necessary condition for the net zero carbon transition. The reconsideration of some of these tenets may be essential to empower the financial system to deliver on mitigating global warming.
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