Abstract

The extreme weather situations are increasing current threats to the environment and human life, suggesting that we need to focus on the transition to a sustainable development model and carbon reduction. This study aims at analyzing the complicated relationship between climate change, represented by the Climate Policy Uncertainty Index (CPU), and the Vietnamese financial market, as reflected through the stock market (VNI, HNI), bond market (BOND), and foreign exchange market (USD/VND) from 2018 to 2024. Using quantile on regression (QQR) and Granger causality tests, the study comprehensively assesses CPU across different quantiles and financial markets in Vietnam. The results show that CPU significantly affects both positively and negatively VNI, HNI, BOND, and USD/VND; this influence covaries across different quantiles. Notably, a strong unidirectional association exists between these variables, where CPU tends to predict the volatility of financial market prices. When climate risks or significant changes in climate policy occur, this causal relationship significantly increases, bringing both risks and opportunities for investors. Therefore, the government should concentrate on implementing climate policies effectively in the process of sustainable economic development in Vietnam.