Climate transition risk
Transition risk can arise when climate-related regulation, technology, consumer preferences or financing conditions change. Assess the entity’s exposure, expected effects on its business model and finances, and management’s response across relevant time horizons. Under IFRS S2, the entity discloses material information about relevant climate risks and opportunities. A transition plan may be relevant to the disclosed strategy, but IFRS S2 does not itself require every entity to have a plan. Distinguish transition risk from physical climate hazards.
Worked example
A delivery company relies on a diesel fleet in a jurisdiction considering tighter emissions restrictions. It assesses potential replacement costs, access to charging infrastructure and the effect on service prices and cash flows.
Common mistake
Treating flood damage as transition risk, or assuming IFRS S2 requires an entity to create a transition plan merely because material information about an existing strategy must be disclosed.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Supporting | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |