Strategic Focus: Transition Risk Primer
20 Nov, 2023
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Executive Summary
Transition risks – that is, risks that emerge from the global transition to a low-carbon economy – are already having material impacts on corporates. However, many firms lack the skills and knowledge to assess and address them. This report provides an overview of these threats and opportunities – specifically, changing markets, new technologies, lawsuits, climate policies and reputational damage – as well as the impacts of a disorderly transition. We also discuss the varied ways these risks materialize, for example, via carbon prices, consumer behaviour and stranded assets. Finally, we outline strategies to plan for and mitigate these risks, such as transition planning based on scenario analysis and partnering with external stakeholders.
Transition risk is a current and worsening threat
Transition risks already affect firms
Future risks will stem from disorderly, delayed or disjointed transitions to a low-carbon economy
Firms should also explore upsides to the transition
Taking action on transition risk
Scenario analysis provides an informed view of transition risk
Materiality assessments rely on monetizing transition impacts
Transition plans support climate action
Climate-specific indicators track progress and identify weaknesses
Partnerships are critical to a successful transition
Transition risks already affect firms
Future risks will stem from disorderly, delayed or disjointed transitions to a low-carbon economy
Firms should also explore upsides to the transition
Taking action on transition risk
Scenario analysis provides an informed view of transition risk
Materiality assessments rely on monetizing transition impacts
Transition plans support climate action
Climate-specific indicators track progress and identify weaknesses
Partnerships are critical to a successful transition
Figure 1. A disorderly transition results in multiple direct and indirect disruptions
Figure 2. Transition plans are key for outlining actions to reduce risk
Figure 3. Sources of transition risk exposure determine the need for external collaboration
Figure 2. Transition plans are key for outlining actions to reduce risk
Figure 3. Sources of transition risk exposure determine the need for external collaboration
Taskforce on Climate-Related Financial Disclosures (TCFD), European Central Bank, The Hague District Court, Tesla, CDP, KPMG, ING Group, Climate Interactive, S&P Global, Airbus, Taskforce on Nature-related Financial Disclosures (TNFD), World Economic Forum, McKinsey & Company, riskthinking.AI, WSP, Oliver Wyman, Air Transport Action Group (ATAG), PZU, OS-Climate, Risilience, NextEra Energy, Investor Group on Climate Change (IGCC), Glasgow Financial Alliance for Net Zero (GFANZ), IBM, Shell, Ball Corporation, Chiquita, FW, Tetra Pak, Grantham Institute – Climate Change and the Environment, Weyerhaeuser, PwC, Toyota, Arla, BloombergNEF
About the Authors
Emma Cutler
Principal Analyst
Emma is a Principal Analyst at Verdantix, with a current research agenda focusing on solutions for climate risk management. She has a background in simulation and statistical …
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Ryan Skinner
Research Director
Ryan is a Research Director at Verdantix, where he leads a team of analysts delivering research, data and advisory services that help clients navigate the fast-evolving landsc…
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