Avoiding long-term transition risk can most likely be achieved by:

Avoiding long-term transition risk involves aligning investment strategies with the anticipated changes in regulations, market dynamics, and environmental sustainability goals. Transition risk refers to the financial risks associated with the transition to a low-carbon economy, which can impact the value of investments, particularly those in carbon-intensive industries. Understanding Transition Risk: Transition risks are associated with the shift towards a low-carbon economy. These include changes in policy, technology, and market conditions that can affect the valuation of carbon-intensive assets. Divesting Carbon-Intensive Investments: Divesting from highly carbon-intensive investments, particularly in the energy sector, is a key strategy to mitigate long-term transition risks. Carbon- intensive investments are likely to be adversely affected by stricter environmental regulations, carbon pricing, and shifts in consumer p

towards more sustainable energy sources​​​​.

Examples and Case Studies: The urgency to respond to the climate crisis is driving both national and

corporate commitments towards Paris-aligned net-zero carbon emissions targets. Reducing portfolio

concentration in highly carbon-intensive sectors will decrease exposure to long-term transition risks.

However, this may reduce the portfolio's income yield as the energy sector often provides above-

market cash flow profiles and dividend income streams​​.

Strategic Asset Allocation: Effective asset allocation strategies involve reallocating investments to

sectors with lower carbon footprints and higher resilience to transition risks. This approach ensures

the sustainability of investment returns and aligns with long-term climate goals.

Therefore, the correct approach to avoiding long-term transition risk is divesting highly carbon-

intensive investments in the energy sector.

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