Transition Risk Pathways

Semieniuk et al. (2019) identify how climate-responsive policies, technologies and consumer preferences impact both the real economy (in which goods and services are produced and traded) and the financial economy (which deals with financial assets, investment, banking and insurance). Economy-wide interactions amplify and transmit the effects to companies, households and governments. Feedback loops can exacerbate the situation.

Image attribution: “Climate Induced changes to policies, technologies & consumer & investor preferences” by Todd Thexton, Financial Impact of Climate Change, Adaptation Learning Network is licensed under CC BY 4.0.

Before continuing, read Semieniuk, G., Campiglio, E., Cercurre, J., Volz, U., & Edwards, N.R. (2021). Low-carbon transition risks for finance. WIREs Climate Change, 12(1). Though the complete article makes an important contribution to understanding transition risks, section 4 (pp. 6 – 13) are critical to interpreting the diagram above.