Climate-related transition risk

Risks that arise from the transition to a low-carbon and climate-resilient economy. They typically include policy risks, legal risks, technology risks, market risks and reputational risks.

Climate-related transition risks affect companies, financial institutions, and economies during the transition to a low-carbon and climate-resilient economy. These risks arise from changes and requirements associated with the transformation to sustainable economic structures and do not result directly from the physical impacts of climate change. The main categories of these risks include political and regulatory risks, technological risks, market risks, reputational risks, and liability risks.

Political and regulatory risks can occur with new laws or increased reporting obligations that pressure existing business models. Technological change requires companies to invest in lower-emission technologies, which can carry the risk of misinvestment. Market risks relate to changes in demand for climate-friendly products and rising raw material prices that can impact markets. Reputational risks arise from public perception of corporate practices in climate protection and can affect customer loyalty and market position. Companies can be held liable if they fail to comply with regulatory requirements or provide inadequate information.

Industries particularly affected are those with high CO₂ emissions, such as energy supply, the automotive industry, and the chemical sector. A systematic risk management approach is essential to identify and manage both physical and climate-related transition risks early and appropriately. Companies that proactively address these challenges have the opportunity to tap into new markets and secure their long-term competitiveness in an increasingly sustainability-oriented economy.