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An introduction to transitional risks.

Transitional risks arise from the societal and regulatory shift toward a nature-positive economy. As policies, market dynamics, consumer expectations, and technological landscapes evolve, companies and investors face:

Policy and legal risks, such as new environmental regulations, conservation requirements, or penalties for non-compliance.

Market and reputational risks, as customers, clients, and shareholders increasingly demand sustainability leadership.

Technological risks, with shifts toward greener technologies rendering certain practices or assets obsolete.

NatureAlpha equips financial professionals to stay ahead of this curve. Geoverse 2.0 automatically tracks and updates company-level data—such as biodiversity policies, governance controls, and environmental disclosures—in real time. Using Large Language Models (LLMs), the platform performs multidimensional unmanaged risk calculations, extracting hidden insights from company reports, earnings announcements, and regulatory filings.

These capabilities allow users to proactively identify transitional risks across companies and sectors, align with TNFD-aligned materiality assessments,and future-proof investments against upcoming sustainability mandates such asCSRD or SFDR.

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NatureAlpha Team
April 11, 2025

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Transitional: Investor divestment & strategy revision

As nature-related risk becomes a core consideration in sustainable finance, investor divestment is emerging as a significant transitional risk for companies failing to align with biodiversity and ecosystem protection goals.

Transitional: Litigation and liability risk

As environmental regulations tighten and public scrutiny intensifies, litigation and liability risk is becoming a critical transitional issue for businesses and financial institutions.

Transitional: Supply chains, systems & processes

As the global economy undergoes a transition toward sustainability, companies face increasing pressure to re-evaluate the supply chains, systems, and processes that underpin their operations.

Transitional: Policy change and activism

As awareness of biodiversity loss and environmental degradation rises, policy change and activism are rapidly reshaping the operating environment for businesses and investors.

Transitional: Natural resource availability

As the global economy shifts toward sustainability, natural resource availability is becoming a central transitional risk. Businesses that rely heavily on finite or declining resources are increasingly exposed.

Transitional: Regulatory and compliance changes

As global momentum builds around sustainability and biodiversity protection, regulatory and compliance changes are emerging as a key transitional risk for businesses and financial institutions.

Physical: Pandemics and social impact

The interconnectedness of human health, biodiversity, and business has never been more evident. Pandemics and their cascading social impacts present significant physical risks to businesses.

Physical: Biodiversity & ecosystem loss

As the natural world continues to degrade, biodiversity and ecosystem loss is becoming a major driver of physical risk—undermining the very systems businesses rely on for resources, resilience, and stability.

Physical: Water risk and rising sea levels

As global temperatures rise, physical water risks and sea level rise are emerging as some of the most material threats to infrastructure, economies, and investment portfolios.

Physical: Droughts, deforestation and landslides

As climate change accelerates and ecosystems are degraded, physical risks such as droughts, deforestation, and landslides are becoming more severe and financially consequential.