What characterizes physical risk in the context of climate change?

Physical risk in the context of climate change refers to the direct impacts that climate-related events and changes have on assets, operations, and the environment. This includes risks arising from acute events, such as floods, hurricanes, and heatwaves, as well as chronic changes like rising sea levels and changing climate patterns. These risks can lead to property damage, disruption of supply chains, and increased operational costs, making it vital for businesses and investors to assess and manage these vulnerabilities in light of climate change.

The other options pertain to different aspects of risk associated with climate-related issues. Market fluctuations in renewable energy, regulatory changes on emissions, and investor sentiment on fossil fuels represent financial, regulatory, and market-related risks, but they do not encompass the direct environmental and infrastructural impacts that characterize physical risks. Recognizing the distinction is essential for a comprehensive understanding of how climate change affects various sectors.