What is Transition Risk? Naturally, a transition economy comes with transition risks. We can define a transition risk as a new vulnerability that organizations are exposed to when moving from one business model to another. The simplest example is an energy company moving from extracting fossil fuels to renewable sources of energy. Or take the example of a logistics company shifting its fleet from internal combustion engines to electric vehicles. Or even a textile manufacturer having to move from ‘fast’ fashion to ‘slow’ fashion to encourage more ethical and sustainable production methods. From an environmental perspective, the new fleet or more sustainable clothing production will be a vast improvement. Nevertheless, the For insurance and the broader switch gives rise to hazards related financial services sector, re-pricing to new infrastructure, new production carbon-intensive financial assets methods, and the general design and represents one significant transition reengineering of physical property. risk. How will these assets be re- In the process of priced? How fast will it happen? Could this lead to non-sustainable adjusting towards assets becoming impaired or a less polluting stranded? Think about energy companies and lower-carbon such as BP, Engie, Orsted, Shell, or economy, several Total. These businesses have had to devise strategies to shift fossil industries already fuel-based business models to new renewable energy-based models. face significant This shift requires one to think about shifts in asset business models in different ways. As old fossil fuel assets lose value values or higher over time, new renewable and digital assets gain value and re-establish or costs of doing strengthen energy companies’ market business. We can capitalizations. see the impact of this on their respective share prices. 9