Why transition risk matters
It can strand assets, raise costs, reduce demand, change competitive advantage, and create litigation or financing pressure.
How it is applied
Investors map emissions, policy exposure, asset life, technology substitution, customer demand, carbon pricing, capital plans, and scenario sensitivity.
Portfolio example
A coal plant with decades of expected life loses value after tighter emissions standards and cheaper renewable generation.
How to interpret it
High current emissions can mean high risk or substantial transition opportunity depending on economics and execution.
Limitations and common misconceptions
Policy paths are uncertain, scenarios are not forecasts, and company disclosures may omit value-chain exposure.
Sources and further reading
- IFRS S2 Climate-related DisclosuresIFRS Foundation
- What is Responsible Investment?Principles for Responsible Investment