Which of the following best describes transition risks?

Transition risks are primarily associated with the financial and operational challenges that organizations face as they shift from fossil fuel-based systems to more sustainable, renewable energy sources. This shift encompasses various factors, including regulatory changes, market dynamics, technological advancements, and societal pressures aimed at reducing carbon emissions and promoting sustainability.

Selecting renewable energy often requires significant investment and may lead to stranded assets, as traditional energy sources become less viable over time. Organizations must navigate these evolving landscapes, adjusting their strategies, investments, and operations to align with new policies and market expectations. The need for adaptation to these changes highlights how transition risks are essential to understanding the broader context of climate-related challenges faced by businesses and industries.

In contrast, other risk types mentioned do not capture the specific essence of transition risks. For example, risks related to climate events impacting infrastructure focus more on physical risks rather than the implications of shifting energy sources. Similarly, changes in public perception, while relevant to the broader conversation of sustainability, do not fully encapsulate the mechanistic shifts that occur during a transition to renewable resources. Lastly, natural disasters and severe weather events fall under physical risks rather than transition risks, as they relate directly to the effects of climate change rather than the response to the changing energy landscape.