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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Environment

Himalaya Polymers Ltd assesses a scenario where a new carbon tax and faster shift to electric vehicles reduce demand for its petroleum-based products and strand some assets. Under TCFD terminology, which category of climate-related risk does this primarily represent?

This is transition risk, because the carbon tax and shift to electric vehicles are policy, technology and market changes arising from the move to a low-carbon economy. Physical risks relate to climate events such as floods or long-term temperature rise, which the facts do not describe.

  1. ATransition riskCorrect
  2. BAcute physical risk
  3. CChronic physical risk
  4. DLiability risk arising only from past litigation

Explanation

Transition risks arise from the shift to a low-carbon economy through policy, technology, market and reputation changes. A carbon tax and technology-driven demand change are policy and market transition drivers. Physical risks stem from climate events such as floods (acute) or rising temperatures (chronic), which are not described here.

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