# Transition Risk

*ESG & Sustainable Finance — Finicade finance glossary*

Transition risk is financial damage from the shift to a low-carbon economy — carbon pricing, regulation, technology substitution, changing customer preferences. It runs opposite to physical risk in an important way: fast, decisive climate policy raises transition risk and lowers physical risk, while delay does the reverse. Scenario analysis exists precisely because both paths must be modelled.

**Also known as:** climate transition risk, policy risk

**Related terms:** [Physical Risk](https://finicade.com/glossary/physical-risk), [Stranded Asset](https://finicade.com/glossary/stranded-asset), [Carbon Price](https://finicade.com/glossary/carbon-price), [Climate Stress Test](https://finicade.com/glossary/climate-stress-test), [Transition Finance](https://finicade.com/glossary/transition-finance)

Source: https://finicade.com/glossary/transition-risk