Module 2: Transition Risks

Module Overview

Module 2 focuses on so-called “transition risks”—risks arising from the process of transitioning (possibly rapidly) to a low-carbon economy in response to climate change. Transition risks can arise from changes in policy, technology, and market conditions. The financial risks of transition include increased input prices and operating costs, abrupt changes to asset values, and deterioration of competitiveness and market share.

In this module, we’ll apply a range of policy, technology and market scenarios to uncover the transition risk exposure of some sample organizations.

Module Objectives

By the end of this module, you will:

  1. Understand the financial and economic risks that arise from transitions to low-carbon economies and identify the transition risk pathways;
  2. Identify climate policy relevant sectors and predict the impact on these sectors of a variety of climate policies;
  3. Understand how transition risks can be indirectly transmitted through the economy by way of financial assets and debt;
  4. Predict the impact of various policy scenarios, ranging from gradual, orderly transition to rapid, reactive and disorderly transition;
  5. Understand the role of climate-related financial disclosure in promoting orderly transition through adequate risk pricing of financial assets.

 

Readings & Resources

Bank of England. (2015, October 1). Breaking the tragedy of the horizon – climate change and financial stability – speech by Mark Carney [Video]. YouTube.

Carney, M. (2015, October 1). Breaking the tragedy of the horizon – climate change and financial stability [Speech transcript]Bank of England.

Hausfather, Z. (2018, April 19). Explainer: How ‘Shared socioeconomic pathways’ explore future climate change. Carbon Brief.

Semieniuk, G., Campiglio, E., Cercurre, J., Volz, U., & Edwards, N.R. (2021). Low-carbon transition risks for financeWIREs Climate Change, 12(1).

Data sources

International Institute for Applied Systems Analysis. (2018). SSP Public Database (v. 2.0) [Database]. https://tntcat.iiasa.ac.at/SspDb/dsd?Action=htmlpage&page=30

 

License

Icon for the Creative Commons Attribution 4.0 International License

Financial Impact of Climate Change by Todd Thexton is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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