Which two main types of climate risks are identified?

The identification of physical risks and transition risks as the two main types of climate risks is well-anchored in the context of climate-related financial disclosures and risk assessment frameworks.

Physical risks are divided into acute and chronic impacts of climate change. Acute physical risks refer to the immediate and severe consequences of climate events such as hurricanes, floods, and wildfires, all of which can disrupt operations, damage assets, and affect supply chains. Chronic risks, on the other hand, are longer-term shifts in climate patterns, such as rising sea levels and changing weather conditions that may affect business viability and sustainability over time.

Transition risks arise from the shift towards a lower-carbon economy as societies respond to climate change. This encompasses policy changes, technological advancements, and shifts in market dynamics. For example, new regulations intended to limit carbon emissions can impose costs on businesses and alter competitive landscapes. Moreover, as investors and consumers increasingly favor sustainable practices, companies may face financial pressure if they do not adapt.

Recognizing these two categories allows organizations to better strategize and mitigate climate-related risks, aligning with the broader goals of sustainability and resilience in facing climate challenges.