Understanding climate-related hazards and transition events
Last updated: May 15, 2025
The climate can have an impact on your company based on two different factors: climate-related hazards and climate-related transition events. These factors influence both physical and transition risks, which can impact business operations, supply chains, and financial performance.
What are climate-related hazards?
Climate-related hazards drive physical risks, meaning the direct effects of climate change on your business. These hazards are divided into:
Acute hazards – Short-term, extreme events such as floods, wildfires, hurricanes, and droughts that can damage infrastructure, disrupt supply chains, and increase operational costs. More examples can be found in the table below.
Chronic hazards – Long-term changes, including rising temperatures, sea level rise, changing precipitation patterns, and soil erosion, which can affect resource availability, land use, and business continuity over time.
More examples of transition events can be found in the table below.
Climate-related risks are physical risks that emerge when a business’s assets or operations are exposed to these hazards and are sensitive to their impacts. To assess these risks, companies can use climate scenario analysis, such as high-emission pathways modeled by the IPCC SSP5-8.5 framework.
Climate related hazards → Climate-related risks
Source: Commission delegated regulation (EU) 2021/2139
Temperature-related | Wind-related | Water-related | Solid mass-related | |
Chronic | Changing temperature (air, freshwater, marine water) | Changing wind patterns | Changing precipitation patterns and types (rain, hail, snow/ice) | Coastal erosion |
Heat stress | Precipitation or hydrological variability | Soil degradation | ||
Temperature variability | Ocean acidification | Soil erosion | ||
Permafrost thawing | Saline intrusion | Solifluction | ||
Sea level rise | ||||
Water stress | ||||
Acute | Heat wave | Cyclone, hurricane, typhoon | Drought | Avalanche |
Cold wave/frost | Storm (including blizzards, dust and sandstorms) | Heavy precipitation (rain, hail, snow/ice) | Landslide | |
Wildfire | Tornado | Flood (coastal, fluvial, pluvial, ground water) | Subsidence | |
Glacial lake outburst |
What are climate-related transition events?
Transition events arise from the shift toward a low-carbon economy. These events are categorized as follows:
Policy & legal events – New regulations, such as stricter emission reporting requirements or carbon pricing mechanisms.
Technological events – The adoption of low-carbon technologies, which may require costly upgrades or render existing processes obsolete.
Market events – Shifts in supply and demand, such as increasing costs of fossil fuels or consumer preferences for sustainable products.
Reputation events – Rising stakeholder expectations, which could affect customer trust, investor confidence, or brand reputation.
More examples of transition events can be found in the table below. These events can lead to climate-related transition risks or opportunities, depending on how exposed and sensitive your assets and business activities are to these changes.
Climate-related transition events → Climate-related transition risks or opportunities
Source: Examples based on TCFD classification
Policy and legal | Technology | Market | Reputation |
Increased pricing of GHG emissions | Substitution of existing products and services with lower emissions options | Changing customer behaviour | Shifts in consumer preferences |
Enhanced emissions- reporting Un obligations | Successful investment in new technologies | Uncertainty in market signals | Stigmatization of sector |
Mandates on and regulation of existing products and services | Costs of transition to lower emissions technology | Increased cost of raw materials | Increased stakeholder concern |
Mandates on and regulation of existing production processes | Negative stakeholder feedback | ||
Exposure to litigation |
How to identify climate risks in your business
To effectively identify the climate-related risks or opportunities for your company, follow these steps:
Identify exposure to hazards: Determine whether your operations, supply chain, or assets are at risk from physical climate hazards like floods, heatwaves, or sea level rise.
Assess transition pressures: Analyze how upcoming policy, technology, market, or reputational changes might impact your business model.
Use climate data & projections: Consider different climate scenarios to anticipate risks and make informed decisions.
Align with reporting requirements: Ensure your risk assessment aligns with disclosure expectations such as the requirements for VSME (comprehensive module C4) or ESRS (E1-9 and IRO-1), providing transparency to stakeholders.