What financial risks do investors face due to climate change?

Investors face significant financial risks due to climate change primarily through the disruption of markets and the uncertainties that can negatively impact asset values. Climate change can lead to various scenarios such as extreme weather events, changes in regulations, and shifts in consumer preferences, all of which can create instability in the markets. These disruptions can influence supply chains, increase costs for businesses, and alter the demand for certain goods and services, leading to heightened uncertainty regarding future cash flows and revenue for companies.

As a consequence, investors may experience fluctuations in asset values, making it difficult to gauge the long-term viability and profitability of their investments. This scenario underscores the importance of integrating climate risk into investment analyses, as failure to do so could lead to significant losses or missed opportunities in the evolving market landscape shaped by climate initiatives and transitions to sustainable practices.

The other options do not accurately capture the nuances of the risks posed by climate change. For instance, stable market growth and consistent asset values do not reflect the reality of an increasingly volatile environment influenced by climate factors. Reduced regulatory oversight contradicts the tendency for governments to implement more stringent regulations as climate awareness grows. Additionally, guaranteed returns from sustainable investments is misleading since no investment can assure guaranteed returns, particularly in a climate-impacted market.