3 They may not be fully aware of the risks they are facing. This appears to have arisen in the asset-backed commercial paper (ABCP) market in 2007, when many investors complained about not understanding the nature of the product they had bought.
Climate risk could also give rise to a risk allocation vulnerability if people have a poor understanding of which assets are likely to perform badly as climate-related events become more frequent and we transition to a lower-carbon economy.