What is defined as potential financial impacts arising from changes in climate conditions?

The correct answer is climate risk, as it specifically refers to the potential financial impacts that arise due to changes in climate conditions. This encompasses a range of factors, including physical risks such as extreme weather events, changing rainfall patterns, or rising sea levels, as well as transitional risks that may stem from shifts towards a low-carbon economy, including changing regulations, market dynamics, and technological advancements. Understanding climate risk is crucial for financial institutions and investors, as it helps them gauge how these changes can affect asset values, investment portfolios, and overall market stability.

While economic volatility, market risk, and portfolio risk are associated with financial impacts, they do not specifically capture the nuances and specificities surrounding climate-related changes. Economic volatility refers to fluctuations in economic performance, which might not relate directly to climate. Market risk generally encompasses broader risks affecting the entire market, not just those driven by climate factors. Portfolio risk involves the overall risk associated with a collection of assets, but it can encompass a variety of risks beyond those directly tied to climate change. Thus, climate risk is the precise term that encapsulates the financial repercussions stemming from changes in climate conditions.