Strategic Investment to Mitigate Transition Risks

TL;DR

This paper develops a multi-period framework to analyze how sector-specific strategic investments and government policies can effectively mitigate transition risks during the shift to a low-carbon economy, balancing economic and operational considerations.

Contribution

It introduces a comprehensive multi-scenario framework for evaluating corporate strategies and policy impacts in the transition to low-carbon economies.

Findings

Regulatory policies significantly influence corporate investment decisions.

Different decarbonization scenarios lead to varied economic and operational trade-offs.

Strategic, sector-specific approaches are crucial for effective transition risk management.

Abstract

This paper investigates strategic investments needed to mitigate transition risks, particularly focusing on sectors significantly impacted by the shift to a low-carbon economy. It emphasizes the importance of tailored sector-specific strategies and the role of government interventions, such as carbon taxes and subsidies, in shaping corporate behavior. In providing a multi-period framework, this paper evaluates the economic and operational trade-offs companies face under four various decarbonization scenarios: immediate, quick, slow, and no transitions. The analysis provides practical insights for both policymakers and business leaders, demonstrating how regulatory frameworks and strategic investments can be aligned to manage transition risks while optimizing long-term sustainability effectively. The findings contribute to a deeper understanding of the economic impacts of regulatory policies and offer a comprehensive framework to navigate the complexities of transitioning to a low-carbon economy.