Which of the following represents a transition risk?

Transition risk refers to the potential financial impacts associated with the shift toward a lower-carbon economy. This can include changes in policy, technology advancements, and market dynamics that can affect various sectors and industries. The correct answer highlights a policy change aimed at promoting low carbon technologies, which exemplifies how regulatory frameworks can shift in response to climate change initiatives.

As governments and institutions implement more stringent regulations to combat climate change, companies may face increased compliance costs, changes in market demand, and operational adjustments to align with new policies. Such shifts can fundamentally affect the economic viability of certain industries, making the risks associated with these changes a critical focus for investors and companies alike in their sustainability strategies.

While the other options represent various types of risks that are important to consider in the broader context of environmental issues, they do not specifically align with the concept of transition risk. Extreme weather events, for example, are more reflective of physical risks related to climate change impacts. Similarly, disruptions in supply chains and long-term temperature rises may indicate broader environmental and operational risks but do not capture the essence of transition risk focused on the socioeconomic and regulatory shifts towards sustainability.