Transition risk

    ESG & Governance

    The risk of financial loss from the move to a low-carbon economy, through policy, technology, market or reputation changes.

    Examples include carbon pricing such as India's CCTS and the EU's CBAM, stricter efficiency rules, cheaper renewables and electric vehicles replacing fossil fuel assets, and customers or investors moving away from high-carbon products. Transition risk is highest in fast-transition scenarios and can strand assets such as coal plants. Legal risk is often treated as part of it.

    Related terms

    Physical risk (climate)Liability risk (climate)Stranded assetCCTS (Carbon Credit Trading Scheme)

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    From the research

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