Abstract: This paper investigates the impact of inflation risk, driven by a Poisson jump process, on sustainable financial welfare consequences within a dynamic stochastic general equilibrium model with investment mandates. Governments use the lower cost of capital to incentivize firms to accumulate funds for disaster mitigation, thereby “decarbonizing” the economy. The accumulation of decarbonization capital effectively reduces the incidence of weather disasters and climate tipping points. Under the influence of inflation risk, the capital costs for the qualified sustainable firms decrease as inflation risk increases. The differences of required rate of return between unsustainable and sustainable firms diminish with inflation risk. The accumulation of decarbonization capital stock also decreases with increasing inflation risk. These findings indicate that inflation risk has a negative impact on the economy’s decarbonization efforts. Furthermore, as inflation risk increases, the socially optimal investment decreases, consumption rises, and welfare level decline in equilibrium.