Skip to content

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

Himalaya Steels Ltd, an Indian manufacturer, finds that a proposed carbon tax and stricter emission norms could raise its production costs over the next decade. It records this under its enterprise risk register as arising from the shift to a low-carbon economy. How is this category of climate risk classified?

This is transition risk. Transition risks arise from policy, legal, technology and market changes as the economy moves towards low carbon, such as carbon taxes and tighter emission norms. Physical risks, by contrast, stem from direct climate events like floods, cyclones or long-term temperature rise.

  1. APhysical risk (acute)
  2. BPhysical risk (chronic)
  3. CTransition riskCorrect
  4. DLiability risk arising only from past litigation

Explanation

Risks from policy, regulatory, technology and market changes while moving to a low-carbon economy are transition risks. Physical risks relate to direct impacts of climate events such as floods or rising temperatures, so options A and B do not fit a carbon tax scenario.

Did you get it right without looking?

One question tells you little. A timed set on Risk Management shows your real accuracy, how long you take and where you lose marks.

Practise Risk ManagementFree diagnostic mock

More Risk Management questions