Transition Risk
Transition risk is the potential financial and strategic impact on organisations from the policy, technology, market, and reputational changes associated with the shift to a low-carbon economy.
What is Transition Risk?
Transition risks arise from the economy’s shift away from fossil fuels and carbon-intensive activities. They include policy risk (carbon pricing, regulations), technology risk (disruptive low-carbon technologies), market risk (changing customer preferences, shifts in demand), and reputation risk (stakeholder pressure, greenwashing accusations). Understanding transition risk requires analysing how carbon-dependent your business model is and how quickly the transition may impact your sector.
Practical Examples
A gas boiler manufacturer faces transition risk as the UK phases out new gas boiler installations from 2035, requiring a strategic pivot to heat pump technology.
A financial institution models the transition risk in its lending portfolio, finding that 20% of commercial loans are to sectors highly exposed to carbon pricing.
How Climatise Helps
Climatise quantifies your emissions by source and activity, revealing your exposure to transition risks such as carbon pricing, regulatory change, and market shifts.
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