Climate & Environment
Sustainability Risk
Definition
A sustainability risk is an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of an investment or an entity's financial performance — the definition embedded in the EU's Sustainable Finance Disclosure Regulation. It is the outside-in lens of double materiality: not the company's impact on the world, but the world's sustainability changes impacting the company — physical climate damage, transition policy, litigation, social licence loss, governance failures.
References
This reference provides supporting context for how “Sustainability Risk” is defined and used.
Source imported for editorial provenance.
Overview
How it is used
The concept structures SFDR product disclosures, enterprise risk management, supervisory stress tests (ECB climate stress test) and investor risk assessment.
Why it matters
Calling sustainability a risk made it unignorable for finance — the framing that moved it from ethics to prudence.