In their analysis, the Task Force on Climate Related Financial Disclosures (TCFD) found three risks related to Climate Change: i) Physical Risk (direct impact from more frequent extreme weather events), ii) transition Risk (coming from the transition to low carbon economies) and iii) Liability Risk (coming from those who take a loss or damage from Climate Change).
If the world is looking for greener and better solutions, Transition Risk is huge! This prompts the question: Are we in a carbon bubble? If we define this as “A hypothesised overvaluation of fossil fuels companies based on the thesis that the current valuation of their assets does not reflect the risk of them becoming stranded”, I would believe this is a “yes”. Now, the question becomes: What happens when it burst?