A changing climate, and the eventual efforts of governments (however reluctant) to deal with it, could have a big impact on investors’ returns. Companies that produce or use large amounts of fossil fuels will face higher taxes and regulatory burdens. Some energy producers may find it impossible to exploit their known reserves, and be left with “stranded assets” — deposits of oil and coal that have to be left in the ground. Other industries could be affected by the economic damage caused by more extreme weather — storms, floods, heat waves and droughts.

On the basis of the above passage, the following assumptions have been made:
1. Governments and companies need to be adequately prepared to face the climate change.
2. Extreme weather events will reduce the economic growth of governments and companies in future.
3. Ignoring climate change is a huge risk for investors.

Which of the above assumptions is/are valid?

The correct option is 1 and 3 only.

Step-by-step Explanation:

1. Analysis of Assumption 1:
The passage states that a changing climate and government efforts to deal with it will have a "big impact on investors’ returns," and that companies using or producing fossil fuels will face higher taxes, regulatory burdens, and stranded assets. It also mentions economic damage to other industries from extreme weather. This strongly implies that to mitigate these impacts, regulatory burdens, and financial risks, both governments and companies need to be adequately prepared to face climate change. Thus, Assumption 1 is valid.

2. Analysis of Assumption 2:
The passage mentions that "Other industries could be affected by the economic damage caused by more extreme weather". However, asserting that extreme weather events "will reduce the economic growth of governments and companies in future" is too absolute and broad. The text specifies "economic damage" to "other industries" rather than a definite reduction in the overall economic growth of governments and companies. Thus, Assumption 2 is not a directly valid assumption from the text.

3. Analysis of Assumption 3:
The passage explicitly begins by stating that a changing climate and government responses "could have a big impact on investors’ returns" and goes on to describe risks like stranded assets and regulatory burdens for fossil-fuel reliant companies, as well as weather-related damage to other industries. Therefore, ignoring climate change represents a huge risk for investors who want to protect their returns. Thus, Assumption 3 is valid.

Consequently, only assumptions 1 and 3 are valid based on the passage.