Session 4 - Climate transition risks & opportunities

Question 1

a.) What is a transition risk?

b.) Can you name a few?

c.) What is the link with physical risk?

Answer 1

a.) Transition risk is the financial risk from shifting to a low-carbon economy, such as policy changes, market shifts, and technological disruptions

Risk = Likelihood of climate hazard x Impact (Socio-Economic and Financial)

b.) Transition risks is for instnce;
policy changes, market shifts (consumer demand), technological advancements, (carbon pricing), and reputational impacts as economies move toward low-carbon solutions

c.) Transition risk and physical risk are linked as the shift to a low-carbon economy affects asset exposure to climate-related hazards (Transition risks are linked to physical risks because both are consequences of climate change)

Question 2

a.) What was TCFD made for?

b.) What are the 4 elements that apply in an organization and where?

Answer 2

a.) The TCFD (Task Force on Climate-related Financial Disclosures) was created to guide companies in disclosing climate-related financial risks

b.)
1. Governance: How climate-related risks are managed at the board and executive levels

2. Strategy: The impact of climate risks and opportunities on business strategy and financial planning (Scenario analyses)
3. Risk Management: Processes to identify, assess, and manage climate-related risks
4. Metrics and Targets: Tools to measure and track climate-related performance and progress (Metrics, Scope 1, 2, 3, targets and analysis)