Glossary • Pakistan
Physical risk and transition risk
Two climate-risk concepts explained with Pakistan-relevant business examples.
Physical risk arises from the physical effects of climate change. Acute risks include floods, heatwaves and storms. Chronic risks include changing temperatures, water stress and sea-level rise.
Transition risk arises from economic and social adjustment toward a lower-carbon economy: policy changes, technology, market preferences, litigation and reputational expectations.
A textile borrower can face physical risk through flood disruption and water stress, and transition risk through buyer emissions requirements or energy-cost changes. The two risks may interact.
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