Climate warming has received much attention in recent years, and the literature in this area has grown rapidly. Economists normally investigate the causes and solutions of carbon emission, while researchers in finance discipline pay more attention to the effect of environmental policies on firms' performance and the market performance of carbon emission related securities. This paper provides a comprehensive review from both theoretical and empirical perspectives. Overall, the understanding of the key driving forces of carbon emission reduction, corporate performance and trading strategies of carbon emission related securities remains largely inconclusive, and the inconsistency in empirical findings are primarily due to methodological problems, such as model design, choice of variables and data availability. On the basis of existing literature, we make recommendations for future research direction.