Glossary
Transition risk

Transition risk

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CONTENTS
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Definition

Transition risk refers to the potential financial and operational impacts of moving to a low-carbon economy. It includes risks related to policy, regulation, market shifts, and technological change.

Example in context

A real estate fund faces new energy-efficiency regulations in two countries. While physical risk remains low, transition risk is high prompting them to reassess retrofit timelines and financial planning.

Why it matters

Disclosure requirements such as the CSRD and IFRS S2 standard require organisations to report on both physical and transition risks. Overlooking transition risk can result in stranded assets, regulatory non-compliance, and reputational damage.

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