Transitionale risiken

What Is Transitionale Risiken?

Transitionale Risiken, or transitional risks, refer to the financial and economic risks that may arise from the global shift towards a lower-carbon economy and away from fossil fuels. This concept falls under the broader category of Climate-related financial risks, which are increasingly recognized by financial institutions and regulators worldwide. Transitional risks stem from the policy, legal, technological, and market changes that will be necessary to achieve climate mitigation goals. These changes can significantly impact the value of assets, the cost of doing business, and ultimately the profitability of companies and the stability of Investment portfolios.

The nature of transitional risks means they can manifest in various ways, affecting different sectors and geographies unevenly. For example, industries heavily reliant on fossil fuels or with high Carbon pricing might face substantial challenges, while companies in Renewable energy or sustainable technologies might find new opportunities. Understanding and managing these risks is crucial for investors, businesses, and policymakers as the global economy navigates the complex path towards a more sustainable future.

History and Origin

The concept of transitional risks gained significant prominence with the growing awareness of Climate change as a systemic financial threat. While discussions about environmental impacts have existed for decades, the direct linkage to financial stability and investment risk began to solidify in the mid-2010s. A pivotal moment was the establishment of the Task Force on Climate-related Financial Disclosures (TCFD) by the Financial Stability Board (FSB) in December 2015.²⁹

Chaired by Michael R. Bloomberg, the TCFD was formed to develop a set of voluntary, consistent disclosure recommendations for companies to provide information about their climate-related financial risks and opportunities to investors, lenders, and insurance underwriters.²⁸ In June 2017, the TCFD released its final recommendations, which provided a framework for companies to disclose critical climate-related financial information.²⁶, ²⁷ This framework became a cornerstone for integrating transitional risks, alongside physical risks, into mainstream financial reporting and Financial disclosures.²⁴, ²⁵ The TCFD's work aimed to ensure that the financial implications of climate change are adequately disclosed, recognizing that insufficient disclosure hinders capital markets from making well-informed asset allocation and risk pricing decisions.²³

Key Takeaways

• Transitional risks are financial risks arising from the economy's adjustment to a lower-carbon future.
• They encompass policy shifts (e.g., carbon taxes), technological advancements (e.g., renewable energy adoption), and market changes (e.g., shifts in consumer preferences).
• These risks can lead to asset revaluations, increased operational costs, or decreased demand for certain products and services.
• Industries with high carbon footprints or reliance on fossil fuels are particularly susceptible to transitional risks.
• Effective Risk management and transparent disclosure are essential for navigating transitional risks.

Interpreting Transitionale Risiken

Interpreting transitional risks involves assessing how a company or an Investment portfolios is exposed to the economic and financial impacts of the transition to a low-carbon economy. Unlike Physical risks, which relate to the direct impacts of climate events, transitional risks manifest through changes in the business and regulatory environment. A company's exposure is influenced by factors such as its carbon intensity, reliance on fossil fuels, adaptability to new technologies, and sensitivity to evolving consumer and Market sentiment.

For example, a company operating in the fossil fuel sector might face a higher transitional risk due to increasing Carbon pricing and declining demand for its products, potentially leading to Stranded assets. Conversely, a company specializing in electric vehicle technology might see opportunities as regulations favor low-emission transport. Investors and analysts use various frameworks, often aligning with TCFD recommendations, to evaluate a company's strategy for addressing these risks, its Corporate governance practices regarding climate issues, and the metrics and targets it uses to manage its transition.²²

Hypothetical Example

Consider "Global Heavy Industry Inc." (GHI), a fictional manufacturing company heavily reliant on coal-fired power plants for its energy needs and producing materials with high embedded carbon.

Scenario: A government introduces a new, progressively increasing Carbon pricing mechanism and stricter Regulatory risk on industrial emissions.

Transitional Risk in Action:

1. Increased Operating Costs: GHI's operational expenses immediately rise due to the carbon price applied to its coal consumption and direct emissions. This directly impacts its profit margins.
2. Market Disadvantage: Competitors that have already invested in Technological innovation like natural gas or Renewable energy sources for their operations now have a cost advantage.
3. Asset Devaluation: GHI's existing coal-fired power plants and high-emission machinery become less economically viable, potentially becoming Stranded assets. Their book value on the balance sheet may need to be written down.
4. Investor Pressure: Investors, concerned about GHI's exposure to transitional risks and potential future profitability, may begin to Divestment from the company, leading to a decline in its share price and increased cost of capital.

To mitigate these risks, GHI would need to develop a robust transition plan, investing in cleaner technologies, improving energy efficiency, and potentially shifting its product offerings to lower-carbon alternatives.

Practical Applications

Transitional risks are a critical consideration across various domains in finance and economics:

• Investment Decisions: Investors integrate transitional risk assessments into their due diligence to identify companies resilient to the low-carbon transition and those at risk of Stranded assets. This influences portfolio construction and asset allocation, especially for those focused on Sustainability or ESG criteria.
• Corporate Strategy: Businesses must analyze how evolving policies and technologies will impact their Supply chain disruption, production costs, and market demand. This informs decisions on capital expenditure, research and development, and long-term business models.
• Financial Reporting and Disclosure: Companies are increasingly required to disclose their exposure to climate-related risks. The U.S. Securities and Exchange Commission (SEC), for instance, has proposed rules to enhance and standardize climate-related Financial disclosures for public companies, including information about material climate-related risks.¹⁹, ²⁰, ²¹ This aims to provide investors with more consistent, comparable, and reliable information.¹⁸
• Bank Lending and Underwriting: Financial institutions assess transitional risks when evaluating loans to carbon-intensive industries or underwriting new projects. They consider how a borrower's business model might be affected by future Carbon pricing, Regulatory risk, and shifts in consumer preferences.
• Central Bank and Regulatory Oversight: Central banks and financial regulators monitor transitional risks due to their potential to impact financial stability. Organizations like the Bank for International Settlements (BIS) analyze how climate-related risks, including transitional risks, can transmit through the financial system and affect traditional risk categories such as credit and market risk.¹⁵, ¹⁶, ¹⁷

Limitations and Criticisms

While the concept of transitional risks is widely accepted, its precise measurement and integration into financial models face several limitations and criticisms:

• Deep Uncertainty: The future trajectory of climate policy, Technological innovation, and market reactions is highly uncertain. This "deep uncertainty" makes it challenging for financial institutions to accurately measure their exposure to the financial impacts of transitional risks.¹³, ¹⁴ Unlike traditional financial risks where historical data can inform probabilities, the unprecedented nature of the climate transition means objective probability distributions of outcomes cannot be reliably estimated.¹²
• Data Gaps and Quality: Despite increased Financial disclosures and regulatory pushes, there remain persistent gaps and inconsistencies in climate-related data, particularly regarding forward-looking and transition-relevant information.⁹, ¹⁰, ¹¹ This lack of comparable and reliable data makes it difficult for investors to accurately assess a company's transitional risk exposure and for regulators to monitor systemic risk effectively.⁸
• Methodological Challenges: Various metrics exist for measuring transitional risk, but studies show significant diversity and sometimes inconclusive results regarding their effectiveness.⁶, ⁷ The complexity in defining what constitutes "green" or "brown" activities, along with the challenge of incorporating indirect (Scope 3) emissions, further complicates reliable measurement.⁵
• Scope and Definition: There is ongoing debate regarding the exact scope and definition of "transition finance" and what activities should or should not be considered eligible. This lack of a common definition hinders efforts to track and quantify the scale of the market and can lead to concerns about "greenwashing."⁴
• Integration into Traditional Models: Conventional Risk management approaches in finance are not inherently suited to accounting for the unique characteristics of transitional risk, which involves long-term horizons and non-linear impacts.³ Efforts are underway to integrate these risks into existing frameworks (e.g., credit risk, operational risk), but significant work remains.¹, ²

Transitionale Risiken vs. Physical Risks

Transitional risks and Physical risks are the two primary categories of Climate-related financial risks. While both stem from Climate change, they differ fundamentally in their drivers and how they manifest in the financial system.

Transitional Risks arise from the process of adjusting to a lower-carbon economy. Their drivers include:

• Policy and Legal: New regulations, carbon taxes, subsidies for green technologies, and shifts in environmental laws.
• Technological: Breakthroughs in Renewable energy, energy storage, and efficiency that displace older, carbon-intensive technologies.
• Market and Market sentiment: Changes in consumer preferences, investor demand for sustainable products, and shifting perceptions of value for carbon-intensive assets, potentially leading to Divestment and Stranded assets.
• Reputational: Damage to brand value or loss of customers for companies perceived as laggards in climate action.

These risks primarily affect profitability, asset valuations, and a company's competitive standing through economic and policy channels.

Physical Risks, in contrast, are the financial impacts resulting from the direct physical effects of climate change. These are typically categorized as:

• Acute Physical Risks: Increased severity and frequency of extreme weather events such as hurricanes, floods, wildfires, and heatwaves, leading to immediate damage to assets, Supply chain disruption, and operational disruptions.
• Chronic Physical Risks: Long-term shifts in climate patterns, including rising sea levels, prolonged droughts, changes in precipitation, and increased average temperatures, which can impact agricultural productivity, infrastructure resilience, and resource availability over time.

Physical risks directly affect assets, operations, and the physical environment, leading to costs such as insurance claims, repair expenses, and productivity losses. While distinct, both transitional and physical risks can interact and compound, necessitating a holistic approach to Risk management for businesses and Investment portfolios.

FAQs

What are the main types of transitional risks?

The main types of transitional risks are categorized into four areas: policy and legal risks (e.g., carbon taxes, new regulations), Technological innovation risks (e.g., disruption by cleaner technologies), market risks (e.g., shifts in demand, consumer preferences), and reputational risks (e.g., negative public perception).

How do transitional risks affect companies?

Transitional risks can affect companies through increased operating costs (e.g., from Carbon pricing), decreased asset values (e.g., Stranded assets like fossil fuel reserves), changes in demand for products and services, and increased cost of capital as investors become more cautious. They can also create opportunities for companies offering low-carbon solutions.

Who is impacted by transitional risks?

Transitional risks impact a wide range of stakeholders, including individual companies (especially those in carbon-intensive sectors), financial institutions (banks, insurers, asset managers), investors, and even governments through their tax revenues and economic stability. Ultimately, these risks can ripple through the entire economy, affecting employment and economic growth.

Are transitional risks the same as climate risks?

No, transitional risks are a type of climate-related financial risk. The broader category of Climate-related financial risks also includes Physical risks, which are the financial impacts of direct physical events and long-term climate changes (e.g., floods, droughts, sea-level rise).