Climate change and credit risk in rural financial institutions: A study based on transition risk

Abstract This study empirically investigates the impact of climate change on credit risks in rural financial institutions, emphasizing transition risk. We analyzed data from 202 rural financial institutions across, China spanning 2012 to 2020. The empirical findings reveal the following: Firstly, climate change exerts an inverted U‐shaped influence on credit risks in rural financial institutions. Secondly, the inverted U‐shaped relationship is influenced by both the level of digital development and uncertainty in climate policy. Lastly, heightened levels of digital development and increased uncertainty about climate policy can mitigate the negative effects of climate change.