Risks of Sustainability & ESG Investment

Question 1

Type of Risks

Answer 1

1. Physical Risks
2. Reputational Risks
3. Transition Risks
4. Regulatory Risks

Question 2

Physical Risks

Answer 2

Impact : Climate change effects, such as extreme weather, flooding or rising temperatures, can disrupt operations and supply chains

Example : Property damage from hurricanes or production losses from droughts

Question 3

Reputational Risks

Answer 3

Impact : Negative public perception due to greenwashing, ESG controversies or failure to meet commitments can damage brand value

Example : Accusations of misleading sustainability claims leading to consumer backlash

Question 4

Transition Risks

Answer 4

Impact : Shifts toward a low-carbon economy can render assets obsolete, increase costs or decrease demand for high-carbon products

Example : Stranded fossil fuel assets due to stricter emission limits

Question 5

Regulatory Risks

Answer 5

Impact : Evolving ESG disclosure requirements and compliance with new laws can increase costs and liabilities

Example : Penalties for non-compliance with climate reporting standards like TCFD or CSRD