4.2 The second channel: transition risks It should be taken as a fact that the 2-degree goal under the Paris Agreement can only be reached if economies across the world are transformed into green, low-carbon economies. Achieving this transition will require potentially disruptive technological advances as well as farreaching changes in climate policy.
Without a doubt, such a transition will prompt markets to reassess the value of a broad range of assets. Depending on how quickly and orderly the transition and the associated re-pricing occur, they could become highly relevant for the stability of financial institutions as well. To illustrate one particular transition effect, let’s look at the concept of the “carbon budget".