What best describes transitional risk versus physical risk in climate context?

• A. Transition risk arises from policy, technology, and market changes; physical risk arises from climate impacts like storms and heat.
• B. Transition risk arises from storms; physical risk arises from policy changes.
• C. Transition risk and physical risk are the same.
• D. Transition risk is about energy prices; physical risk relates to noise pollution.

Answer: (A)

The main idea here is distinguishing two sources of climate-related risk: the risks that come from shifting to a low-carbon economy (transition risk) and the risks that come from actual climate impacts (physical risk). Transition risk arises as policies, technologies, and markets change to cut emissions—things like new carbon pricing, stricter regulations, subsidies or bans for certain technologies, and shifts in demand. These changes can affect the value of assets, profitability, and investment decisions. Physical risk, on the other hand, comes from the direct effects of climate change—more intense storms, heat waves, floods, droughts, and sea‑level rise—that can damage assets, disrupt operations, and strain supply chains.

The best description matches this separation: transition risk from policy, technology, and market shifts; physical risk from climate impacts such as storms and heat. The other options confound or mix these concepts or introduce unrelated ideas (like noise pollution) that aren’t central to climate risk framing.