Climate risk refers to the potential negative impacts of climate change on the environment, society, and the economy. Climate risk can arise from both physical and transition risks.
Physical risks include the direct and indirect impacts of climate change, such as extreme weather events, sea-level rise, changes in temperature and precipitation patterns, and natural disasters. These physical risks can have direct impacts on infrastructure, supply chains, and natural resources, and can lead to economic losses, social disruption, and human suffering.
Transition risks refer to the risks associated with the transition to a low-carbon economy, such as policy and regulatory changes, shifts in consumer behavior, and technological advancements. Transition risks can impact companies and industries that are highly dependent on fossil fuels, such as the oil and gas industry, and can lead to financial losses, stranded assets, and reputation damage.
Climate risk is becoming an increasingly important consideration for businesses, investors, and governments as the impacts of climate change become more evident and the transition to a low-carbon economy accelerates. Climate risk management involves identifying and assessing climate risks, developing strategies to mitigate these risks, and building resilience to the impacts of climate change.
Many organizations are now implementing climate risk management strategies as part of their broader sustainability and corporate responsibility efforts. Governments are also taking action to address climate risk through policy and regulatory frameworks, such as the Paris Agreement and the Task Force on Climate-related Financial Disclosures (TCFD).