Physical climate impacts increasingly confront investors with unplanned and abrupt changes or disruptions to businesses or assets. In addition, investors face transition risk to a low-carbon and climate resilient future. This has different angles: changes in climate and energy policies, a shift to low-carbon technologies and liability issues. Transitional impacts can vary substantially depending on scenarios for policy and technology changes.
Current pledges under the Paris Agreement are not consistent with a 2°C target. Although the Agreement provides a strong global signal, current pledges add up to 2.8-3.4°C global warming and are subject to some uncertainty in domestic implementation as well as some requirements for financing.
Domestic political and regulatory developments in key countries such as the US, China, and EU will continue to drive major carbon pricing developments, and offer different risks and opportunities. Meeting 2°C can be considered a low-probability scenario, and a range of carbon pricing scenarios can be useful for considering policy risk in different regions.
Shades of Climate Risk assesses risks in carbon and other climate policies of some of the world's biggest emitters, including the US, China, the European Union, and emerging economies India and Brazil.
Liability risk could increase, with potentially large financial consequences, if the policy framework on climate is not strong, and more severe climate impacts occur. Shades of Climate Risk lists some recent developments.
Beyond what is driven by carbon pricing, there is uncertainty in technological development and deployment, which can represent both opportunities and risks. Shades of climate risk assesses some changes that are critical to meet the targets of the Paris Agreement, including carbon capture and storage, electrification of transport and renewable energy.