Transition Risks

Presentation

Transition risk assessment, traditionally focused on direct emissions and carbon tax implications, often overlooks the full scope of transition-related risks. This narrow view fails to address the broader challenges companies face in a transition toward a low-carbon economy. To better understand these risks, a comprehensive assessment of the entire value chain is necessary. This includes not only direct emissions but also the complexity of Scope 3 emissions, as well as indirect impacts across various sectors.

EDHEC Climate Institute (ECI) recognises this challenge as an opportunity to develop innovative methods for assessing transition risks in a holistic manner, addressing complexities at the geo-sectoral level and capturing the various trade-offs companies face during the transition. By improving how we quantify these risks, ECI aims to provide a clearer picture of the potential consequences of the transition to a low-carbon economy. 

To effectively quantify transition risk, ECI will develop advanced climate-financial scenario analysis models that go beyond conventional emissions assessments. These models will integrate a variety of factors, including:

• Geo-Sectoral Challenges: Incorporating regulatory changes beyond carbon taxes, considering local policies, and addressing industry-specific obstacles that affect different sectors.
• Scope 3: Provide a reliable estimate of Scope 3 emissions and its potential financial impact distinguishing between upstream Scope 3 emissions (emissions from raw material extraction, production processes, and logistics) and downstream Scope 3 emissions (emissions generated from the use and disposal of sold products). This also means having a comprehensive view of sectoral supply chains and their related emissions.
• Climate sentiment: Develop AI-based tools to better quantify climate sentiment which can be representative of consumer choices and citizens’ concerns which lead to climate societal pressures driving regulation.
• Consumer Behaviour Models: Understanding changes in consumer preferences, such as a shift toward low-carbon products or substitutions that affect demand.