What does the concept of "physical risks" refer to in sustainability risk management?

The concept of "physical risks" in sustainability risk management specifically refers to the risks that arise from direct physical impacts associated with climate change. This includes events such as extreme weather conditions—hurricanes, floods, droughts, and rising sea levels—that can affect various systems, including infrastructure, agriculture, and human health.

Understanding physical risks is crucial because these events can lead to significant financial losses, disrupt operations, and create liabilities for businesses and communities. Organizations need to assess their vulnerability to these risks and develop strategies to mitigate their impacts, which is essential for long-term sustainability.

Other options reference risks that are important in sustainability management but do not encompass the direct link to physical environmental changes that the concept of "physical risks" conveys. Investor behavior, policy changes, and supply chain disruptions are all critical aspects of sustainability risk management, yet they represent different dimensions not specifically categorized as physical risks.