RM5.1: Transition Risk Identification
Prefill
Eligible
Validation
Evidence is manually validated
2026 Updates
None
Does the entity have a systematic process for identifying transition risks that could have a material financial impact on the entity?
Assessment Instructions
Intent: What is the purpose of this indicator?
The intent of this indicator is to assess whether and how the entity uses a systematic approach for identifying transition risks that could have a material financial impact on the entity.
A comprehensive system for managing transition risks begins with a systematic process for identifying risks that could have a material financial impact on the organization or entity. Such a process ensures that subsequent risk assessments and analyses are focused on the most relevant risks to which an entity is exposed.
Input: How do I complete this indicator?
Select Yes or No: If selecting 'Yes', select all applicable sub-options. It is possible to report using the ‘Other’ answer option. Ensure that the ‘Other’ answer provided is not a duplicate or subset of another option.
Terminology
Entity
Related specifically to the named entity, where entity is defined as the investable asset for which participants submit an Assessment response. This option should be selected if the scope of the reporting (e.g., Annual Report) includes actions or performance disclosure that is in direct reference to, and/or matches, the entity completing the GRESB submission. This could be an Annual Report that is solely applicable to the entity or includes specific and detailed actions/performance of the entity.
Entity-level
Explicitly applicable to the reporting entity as identified in EC1. Note that references to the overarching fund and/or group of which the reporting entity is part do not imply entity-level applicability.
Fund-of-Funds (FoF)
A Fund-of-Fund (FoF) is an investment fund that allocates capital across multiple underlying investment funds rather than directly investing in individual assets, securities, or properties. In the context of GRESB Fund and Asset Assessments, a FoF entity will use the practices of its underlying funds to report and be measured on sustainability performance.
Material financial impact
In the context of this indicator, material financial impact is used in accordance with its use by the TCFD to express information about impacts on an entity and its financial manifestations insofar as such information is deemed to be material. As per the TCFD, “in determining whether information is material ... organizations should determine materiality for climate-related issues consistent with how they determine the materiality of other information included in their financial filings.” Furthermore, “asset managers and asset owners should consider materiality in the context of their respective mandates and investment performance for clients and beneficiaries.”
Systematic risk identification process
A process for identifying risks that is structured, repeatable, undergone at regular intervals, and designed in such a way that it can capture the potential risks that could prove financial material to the entity. It may be a standalone process, or it may be a step within another larger risk assessment process. Furthermore, it may leverage quantitative methods (e.g., use of modeling, data analysis, quantitative thresholds) and/or qualitative methods (e.g., expert consultation, working groups).
Transition risks
The risks associated with the transition to a lower-carbon global economy. These risks most commonly relate to policy and legal developments, technological changes, market responses, and reputational concerns. These risks are particularly relevant for actors with high GHG emissions within their value chain and are thus sensitive to policy and regulatory actions aimed at emissions reductions, energy efficiency, etc.
Policy and legal risk
Policy risk derives from policy action that either tries to constrain actions which contribute to climate change, or to promote adaptation to climate change. Legal risk arises from an increase in climate-related litigation, for instance due to failure of an organization to properly communicate and account for its interactions with the climate.
Increasing price of GHG emissions
Examples include, but are not limited to: the implementation of a carbon tax, or cap and trade systems (e.g. EU ETS)
Enhancing emissions-reporting obligations
Examples include, but are not limited to: TCFD reporting, the Regulation on sustainability-related disclosures in the financial services sector (SFDR), EU Taxonomy, Streamlined Energy & Carbon Reporting (SECR)
Mandates on and regulation of existing products and services
Examples include, but are not limited to: TCFD reporting, the Regulation on sustainability-related disclosures in the financial services sector (SFDR), EU Taxonomy, Streamlined Energy & Carbon Reporting (SECR)
Exposure to litigation
Examples include, but are not limited to: tort, negligence, and nuisance claims of contribution to climate change and thereby leading to specific damages; state-brought claims against energy companies; claims of breach of entity board members' duty to act in the best interests of the entity; claims by shareholders of failure to properly disclose in annual reports the risk of climate change resulting from possible investments.
Technology risk
New technologies may displace old systems and disrupt existing parts of the economic system. Therefore, technological improvements and innovations can affect competitiveness, production and distribution costs, and potentially the demand for certain products and services, thus resulting in considerable uncertainty.
Substitution of existing products and services with lower emissions options
The “existing products and services” as used here refers to the main function of the entity. The risk of substitution for lower emissions options refers to a shift in the use of technologies that results in the reduction of the demand of such a function. For infrastructure, this will depend on the assets in question. This does not refer to the substitution of lower emissions technologies in the provision of the same core function (see Costs to transition to lower emissions technologies. Examples include, but are not limited to: substitution of cars and the associated use of road infrastructure for lower-emission public transportation options; the electrification of buildings and building appliances and the resulting reduction in demand for natural gas and its distribution services; substitution of rail for low-emission long-distance trucking fleets.
Unsuccessful investment in new technologies
Examples include, but are not limited to: investment into new technology unsuccessful due to difficulty of adoption or more efficient substitutes; unanticipated costs of operation, installation, or permitting; incompatibility with existing local electric grid operations; underperformance of new technologies compared to expected performance; insufficient infrastructure and/or adoption of technology (e.g., electric car charging stations) to achieve network effects, etc.
Cost to transition to lower emissions technologies
Examples include, but are not limited to: change in electric grid energy generation mix; costs of replacing vehicle fleet with lower-emission vehicle fleet
Market risk
Market risk refers to shifts in supply and demand for certain commodities, products, and services due to the broader transition towards a lower-carbon economy.
Changing customer behaviour
Examples include, but are not limited to: shift in preferences around mode of travel; preference for clean or renewable energy sources
Uncertainty in market signals
Examples include, but are not limited to: timing, shape, and magnitude of economy-wide decarbonization; energy price volatility; insufficient “pricing-in” of climate-related premiums; misguided assessment of industry and competition trends
Increased cost of raw materials
Examples include, but are not limited to:increased price of electricity, fuel, concrete, steel
Reputation risk
The risk around changing customer or community perceptions of an entity’s contribution or detraction from the transition to a low-carbon economy.
Shifts in consumer preferences
This option describes the shift of consumer preferences specifically around the provider of the good or service as a result of that provider’s treatment of climate-related issues. It does not describe an overall or provider-agnostic shift, which would be categorized as Changing customer behavior as described above
Stigmatization of sector
Loss in financial loans or increase in cost of capital due to hesitation about the sector’s general handling of climate-related issues
Increased stakeholder concern or negative stakeholder feedback
Such increased stakeholder concern or negative feedback might not be immediately financially material to an entity, but it signals that it could become so -- in the form of loss in financial loans or increase in cost of capital -- if action is not taken with regard to an entity’s identification, assessment, and management of climate-related issues. Examples include, but are not limited to: stricter requirements to incorporate climate risk in investment decisions
Validation: What evidence is required?
Evidence
The evidence and open text box will be subject to manual validation.
The provided evidence must cover the following elements:
Demonstrate that there is a systematic risk identification process for transition risks in place and not simply a generic “climate-related risk” assessment;
Demonstrate outcomes of the transition risk identification assessment. It is expected that the document list/state which risks, or lack thereof, were identified as a consequence of the risk assessment having been carried out.
The outcome-based information must pertain to the entity/portfolio in question and not only to the manager/group/business-unit level. Note: For fund-of-funds, entity-level applicability must be explicitly established
The risk assessments must apply to the reporting year or two years prior (2025, 2024, 2023).
Examples of appropriate evidence include, but are not limited to:
For Process: A document describing the entity’s process towards transition risk assessments or other tangible proof of the entity's risk assessment activity. This process-based information can include information akin to materiality determination, scenario analysis, modeling or review of legislation.
For Outcome: An extract of a procedure undertaken such as a risk register or matrix, checklists, scenario analysis or a section of a risk framework or risk management plan addressing transition risks. Such documents can help exhibit the outcomes of the risk assessments.
For Entity-level Outcomes: Entity-level documentation that highlights specific transition risks identified for the entity. If using group-level documentation, ensure the outcomes relevant to the entity are explicitly highlighted within the broader assessment.
Other Answer
The 'Other' answer provided will not be subject to manual validation.
State the other transition risk issue.
Scoring
Scoring: How does GRESB score this indicator?
The scoring of this indicator is equal to the sum of the fractions assigned to the selected options and respective sub-options, multiplied by the total score of the indicator.
Evidence: The evidence is manually validated and assigned a multiplier, according to the table below. The evidence must support the validation requirements.
If any requirements are not met, the evidence may be partially accepted or not accepted, depending on the level of alignment with the requirements.
Accepted
2/2
Partially Accepted
1/2
Not Accepted
0
Get Support: Solution Providers
GRESB Solution Providers are independent, third-party organizations within the GRESB Partner network that offer specialized products, tools, and services to support sustainability performance outside the GRESB Assessment process.
The organizations below deliver commercially available solutions designed to help drive improvement for this indicator. Engagement is managed directly between the reporting entity and the Solution Provider.
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