Transition risks can occur during the move towards a greener economy. For some sectors, a transition like this could mean higher costs of doing business or a shift in asset values (like coal, oil or gas) which could have a negative impact on that sector and the economy.
This is not to say that policies like the Paris Climate Agreement are bad for the economy, it’s more about the speed in which we transition to a greener economy and how this impacts certain sectors. It’s important to note that the risk of delaying these policies all together would be far worse.
According to Donovan Burton, Climate Change Adaptation Specialist & Member of the Hub’s Advisory Panel, “Transition risk is about responding to a low carbon future.”
Burton believes the world has to be at zero carbon by 2050 at the latest. “If we don’t reach this target then the chances of runaway climate change are almost guaranteed. At the current rate of international commitment to the reduction of greenhouse gas emissions, we have a 5% chance of containing global warming to 2 degrees. To put this into perspective - at 2 degrees we have no Great Barrier Reef”.
The transition to a low carbon economy carries both risk and opportunity and could either unfold gradually over the next 30 years or happen through knee jerk, fast reactions. Transition risks include policy changes, shifts in market preferences, norms and technology. By identifying the transition risks involved on the journey to being net zero by 2050, we can avoid sudden shocks to organisations, corporations and the community. That way we can better manage the transition, meaning we’re more likely to succeed.
For instance, it needs to be recognised that carbon emissions are beginning to carry a corporate financial risk and if systems across councils and organisations aren’t updated and adapted accordingly, then a carbon price could be put into place. Carbon is no longer simply reducing greenhouse gases, it is becoming a corporate, financial, realised risk.