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

Veda Textiles Ltd., a listed manufacturer in Tamil Nadu, finds that new carbon-pricing rules and stricter emission limits could raise its operating costs and make its coal-fired boilers uneconomic within five years. In climate risk classification, this exposure is best described as:

This is transition risk. Carbon pricing and tighter emission limits are policy changes driving the move to a low-carbon economy, which can raise costs and strand assets. Physical risk instead covers direct damage from climate events like floods or cyclones.

  1. APhysical risk (acute)
  2. BTransition riskCorrect
  3. CLitigation risk arising only from past emissions
  4. DReputational risk from greenwashing

Explanation

Transition risks arise from the shift to a low-carbon economy through policy, technology, market and reputation changes. Carbon pricing and emission limits are policy-driven changes, so this is transition risk. Physical risk relates to climate events such as floods or cyclones damaging assets.

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