When we talk about climate risks, we generally refer to two broad categories: physical risks and transition risks. Physical risks involve the impacts of extreme weather events—such as hurricanes or wildfires—as well as long-term shifts in climate patterns caused by rising temperatures, including sea level rise and prolonged droughts. Transition risks, on the other hand, are linked to the uncertainty surrounding global efforts to reduce greenhouse gas (GHG) emissions and shift to an economy that decouples economic growth from carbon emissions. These efforts align with the global goal of limiting average temperature rise to no more than 1.5°C above pre-industrial levels, as established in the Paris Agreement.

Any action that accelerates or supports a low-carbon transition can pose risks to organizations that fail to prepare. These include both international and national climate policies. Internationally, we are seeing increasing adoption and implementation of carbon pricing instruments (CPIs). These policies—generally in the form of carbon taxes or emissions trading systems—encourage emissions reductions across different economic sectors.

In Chile, for instance, a carbon tax came into force in January 2017 as part of a broader tax reform (Law 20.780, September 2014), setting a price of USD 5 per ton of CO₂ emitted. This figure contrasts with the social cost of carbon used by the Ministry of Social Development, which is set at USD 32.5 per ton of CO₂ for project evaluation. Amendments to the carbon tax, introduced under Law 20.210 and published in February 2022, came into effect in 2023. These changes expanded the scope of the tax to include sources that emit more than 100 tons of particulate matter per year or more than 25,000 tons of CO₂ annually, while exempting low-capacity seasonal sources (under 50 MW).

These regulatory changes, along with projected future carbon pricing scenarios such as those outlined in Chile’s Long-Term Energy Planning Process (PELP), could impact the competitiveness of various economic sectors. A study by ImplementaSur for GIZ found that a sector’s vulnerability to transition risks is directly linked to its GHG emissions intensity. CPIs will require companies to invest in clean technologies, which could trigger structural market shifts and critical risks for competitiveness. The report identified the cement, fuel refining, and basic metals sectors as especially vulnerable due to their high emissions and exposure to international trade.

In general, industries with high emissions exposure tend to be more proactive in adopting cleaner technologies, partly to reduce operational costs—which often results in emissions reductions. Still, the pace of decarbonization remains a challenge, particularly when it comes to overcoming regulatory, financial, and commercial barriers that can affect multiple sectors.

Transition risks typically fall into four categories: technological, market-related, regulatory, and reputational. Technological and market risks relate to the uncertainty of adopting low-carbon technologies that could improve a company’s competitiveness or create new product lines. The main challenge lies in the timing of development and deployment. Regulatory risks involve policies that either restrict emissions (such as carbon pricing) or promote mitigation measures. Reputational risks arise from how stakeholders—customers, communities, and especially investors—perceive a company’s response to climate change. Many investors now use corporate performance indices like the Dow Jones Sustainability Index (DJSI) to evaluate companies based on climate-related disclosures.

For these reasons, it’s essential that companies learn to assess and manage transition risks. These risks can be analyzed using three key variables:

• The probability of a climate-related threat occurring.
• Exposure: whether and to what extent an organization or asset is affected by the threat.
• Vulnerability: the degree to which the organization or system is susceptible to adverse effects from that threat.

With these variables, it is possible to conduct qualitative analyses to determine which assets or companies may be more affected in the future. For example, an analysis could focus on current or projected carbon regulations and how they impact a company based on its emissions levels, electricity consumption, or other factors.

At ImplementaSur, we have conducted numerous climate risk assessments for various clients. This includes work with one of the leading retail real estate companies in Latin America, as well as the development of open-access tools to estimate potential carbon pricing costs. These tools are designed to help companies complete CDP questionnaires, submit to DJSI evaluations, or comply with TCFD recommendations.

After assessing climate risks, the next step is to develop a transition roadmap or action plan to address them. At ImplementaSur, we have supported clients in creating such roadmaps, including one for Chile’s steel industry under the study “Low-Carbon Development for Chile’s Steel Industry,” commissioned by Fundación Bariloche, GIZ, and the Ministry of Energy. These roadmaps outline phases, responsibilities, timelines, and resources, and they prioritize mitigation measures based on cost-efficiency and impact. The plan also identifies implementation barriers, supporting frameworks, and key stakeholders involved.

The private sector is increasingly recognizing the urgency of addressing climate risks—and realizing that proactive management is more cost-effective than reacting to impacts once they occur. Ultimately, the transition to a low-carbon economy should be seen not just as an environmental compliance requirement but as a long-term investment strategy that aligns business resilience with the global imperative to fight climate change.