Physical risks cover extreme weather events and long-term climate shifts; transition risks cover changes in regulation, technology, markets and reputation. TSRS 2 requires the effects of these risks on strategy and the financial statements to be assessed through scenario analysis.
Related terms
TSRS 2The standard setting out the disclosure requirements for climate-related risks and opportunities.Enterprise risk management (ERM)The process of identifying, assessing, managing and monitoring, in an integrated way, the risks that could affect an organisation's achievement of its objectives.Carbon Border Adjustment Mechanism (CBAM)An EU regulation that puts a price on the embedded carbon emissions in the production of certain goods imported into the European Union.Carbon footprintThe total greenhouse gas emissions caused by an organisation, product or activity, expressed in carbon dioxide equivalent (tCO₂e).Double materialityAssessing sustainability matters both in terms of their effect on the company's financial position (financial materiality) and the company's impact on the environment and society (impact materiality).ESGShort for environmental, social and governance factors, used to assess companies' sustainability performance.
Last updated: October 22, 2026 · This definition is for general information only.