ICAEW SE · Chapter 4 · Question 4 of 18
A warehouse company faces two climate-related risks: (1) its site is increasingly likely to be flooded in severe storms, and (2) average summer temperatures are gradually rising, increasing cooling costs. How should these risks be classified?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) (1) Acute physical risk; (2) chronic physical risk
Explanation
Physical risks arise from the physical effects of climate change. Acute physical risks are event-driven, such as storms and floods, whereas chronic physical risks result from longer-term shifts, such as rising average temperatures. Transition risks arise from the move to a low-carbon economy, such as policy or market changes.
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