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

Kaveri Textiles Ltd has spinning units on the Tamil Nadu coast. Its risk committee notes that cyclones and flooding have damaged plants twice in five years, and that long-term sea-level rise may make the sites uninsurable. Which description of the risks identified is correct?

Cyclone and flood damage is acute physical risk because it is event-driven, while sea-level rise is chronic physical risk because it is a gradual, long-term shift. Neither is transition risk, which relates to policy, technology and market changes in moving to a low-carbon economy.

  1. ACyclone damage is acute physical risk and sea-level rise is chronic physical riskCorrect
  2. BBoth are transition risks because they affect profits
  3. CCyclone damage is chronic physical risk and sea-level rise is acute physical risk
  4. DBoth are governance risks because the committee identified them

Explanation

Event-driven hazards like cyclones and floods are acute physical risks, while gradual shifts like sea-level rise or sustained temperature change are chronic physical risks. Option C reverses the classification, and transition risk concerns the shift to a low-carbon economy, not climate events.

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