What does the term "climate-related financial risk" encompass?

The term "climate-related financial risk" comprehensively encompasses all potential financial losses arising from the impacts of climate change and the transition to a lower carbon economy. This includes both physical risks, which stem from the direct effects of climate change such as extreme weather events, rising sea levels, and long-term changes in climate patterns, as well as transition risks that come from shifts in policy, technology, and market dynamics as economies move towards sustainability.

This definition captures the broad spectrum of risks that financial institutions, businesses, and investors face due to climate-related factors. It underscores the complexity of understanding how climate change can affect asset values, cost structures, and overall financial stability, highlighting the necessity for organizations to incorporate climate risk assessments into their strategic planning and risk management frameworks.

The other options provided are too narrow in their focus, either limiting the scope to just natural disasters or only referring to potential gains or unrelated risks, and thus do not capture the full range of financial implications associated with climate change.