A technology company announces a goal of increasing recycling programs by 30% and reducing company carbon emissions by 50% by 2040. A climate risk analyst at the company develops a sustainability framework and identifies ways to measure company-level transition and physical risks.
Which of the following should the analyst use to measure company-level transition risk?
An investment bank of a southern African country appoints a task force to assess current climate risk practices. The task force examines the potential of climate change to cause systemic risk at the macro level to inform climate investment strategies. The task force evaluates potential disruption scenarios to the financial system due to climate risk. Which risk type will most likely have the lowest potential to cause systemic risk to the financial system of the country?
A mid-size bank in Australia will implement scenario analysis as part of a risk assessment to measure climate risk. A risk manager in charge of this project reviews current practices among peers worldwide.
To align with common and well-established practices of financial firms, how will the risk manager implement scenario analysis to assess climate risk?
To inform climate policy in a European country, a coalition of government scientists prepares a report on future climate conditions. Within the report, the scientists summarize how positive feedback loops accelerate the rate of climate change. Which feedback loop will the scientists most likely include in the coalition report?
A credit loan officer at a commercial bank reviews a loan application from a company engaged in coal-fired power generation. The loan officer examines transition risks associated with the company’s business strategy.
What policy risk driver should the loan officer identify?
In response to policy and technology changes, a cement manufacturer looks for new opportunities to raise profits by reducing GHG emissions. Because the cement industry accounts for a considerable percentage of global emissions, the manufacturer joins a coalition of company peers. The coalition lobbies country governments to adhere to the Paris Agreement nationally determined contributions (NDCs).
Which of the following actions does the coalition recommend?
An alliance of electricity power producers examines a proposed cap-and-trade regulation that would affect most members. The alliance lobbies lawmakers to strengthen banking and borrowing provisions in the proposed regulation, allowing increased flexibility for the sector to comply with emissions limits.
What component of climate risk is the alliance directly attempting to influence?
The Commissioners of Insurance for a state in the western United States recommends all insurers now report annually on climate change, using TCFD guidance.
Which of the following sectors do the commissioners correctly identify as encompassing the full scope of the TCFD recommendations?
A scientist at a large agricultural company develops an internal presentation that explains weather variation and long-term climate change. The scientist presents global annual temperature anomalies (relative to a 1951-1980 average) throughout the last 20 years:
What natural forcing contributed to the temperature trend from 2014 to 2016?
A senior advisor from a government agency in Southeast Asia proposes a national framework to classify sustainable economic activities, aligned with the EU Taxonomy. The new framework will limit environmental harm and promote sustainable growth. Which EU Taxonomy requirement will the advisor most likely incorporate into the proposed framework?
In response to consumer demand for eco-friendly products, a global personal care company develops a net-zero transition plan. The company sustainability team recommends an appropriate carbon accounting method for the plan. Which of the following country-level emission accounting methods is most likely recommended and why?
A global logistics company evaluates how climate change could disrupt its global distribution network. The CSO recommends a scenario analysis exercise to explore long-term risks and opportunities. Which of the following variables should the company include to effectively develop climate scenarios?
A venture capital coalition integrates ESG considerations into an investment strategy for generative AI startups. An external consultant assesses sustainability risks to align coalition strategy with ESG benchmarks. Which of the following insights will most effectively inform the coalition investment strategy?
An international development bank publishes an annual index that evaluates climate risk at a regional level. The index consists of several economic, policy, and physical risk components. For the upcoming index publication, the bank identifies new components that reflect the ability of companies and local infrastructure to incorporate clean and renewable energy sources into electric grids and transport systems. Which of the following risk components will the bank most likely identify?
As climate change poses new financial risks to a central bank’s monetary policy operations, the bank decides to adapt operations with NGFS guidelines. Because the central bank does not include climate change in supervision practices, the bank consults subject matter experts (SMEs) to develop a proposal for central bank action on climate change. After completing the risk assessment, SMEs recommend the bank incorporate microprudential and macroprudential measures to embed climate change into supervision practices.
Which action are SMEs likely to recommend?
A fashion company raises an SLL to improve the company ESG score. The sustainability team identifies two sustainability KPIs for finalizing the loan with a financial institution. Which of the following KPIs did the team most likely recommend for the SLL?
A diversified industrial company embarks on a climate transition strategy to invest in a more fuel-efficient airline fleet. To finance the investment, the CSO analyzes sustainable finance instruments and recommends instruments most suitable to issue.
Which of the following financial instruments should the CSO recommend and why?
To assess potential business implications of climate change, a large manufacturing company implements scenario analysis for the first time. The company hires a consultant to help incorporate climate-related considerations into a model of the company’s potential business outcomes.
What useful scenario analysis information should the consultant make the company aware of?
The climate risk team at a global bank works on a sustainability and climate risk report for a forthcoming company strategy meeting. The meeting will focus on bank goals to achieve net zero GHG emissions by 2050. Bank leaders will discuss potential risk exposures the bank may face, as well as possible financial systemic effects.
Which of the following is an example of how systemic climate risk can translate into liquidity risk for the bank?
An insurance firm announces it will adopt sustainable practices. To inform sustainable strategy, a company risk analyst researches climate risk. The analyst reviews how climate risk manifests as financial risk through effects on microeconomic company-level risks on various types of companies and institutions. The analyst also identifies possible opportunities resulting from climate risk. Risks and opportunities are presented to senior management.
Which of the following does the analyst cite as an example of how climate risk affects liquidity risk?
An EU vehicle braking system manufacturer implements a new sustainability framework for SLBs to finance projects with environmental and social benefits. The company sustainability team prepares a new SLB and submits the bond to an external reviewer for assessment. The bond contains four KPIs:
1. Scope 1 CO2 emissions
2. Supplier engagement on GHG emission reduction
3. Percentage of renewable energy used
4. Percentage of women in managerial roles
The bond benchmark year is 2022 and the bond will mature in 2030 Which of the following SPTs did the reviewer find aligns with the core components of SLB Principles?
The central bank of a Southeast Asian country joins the NGFS to address climate-related risks and promote financial stability. To align with the central bank mandate and NGFS recommendations, the risk team prioritizes NGFS recommendations directly applying to the bank role in the financial system. Which central bank action will the team most likely prioritize during implementation?
The board of directors of a growing asset management firm recommends the firm expand its ERM framework to incorporate climate risks. In response, the risk team references the COSO ERM framework for applying ESG-related risks to develop and propose a strategy to implement climate risk into the various ERM components.
How will the risk team modify the existing strategy component of the company’s ERM framework?
To comply with publicly stated climate goals, a country dependent on fossil fuel production begins phasing out oil production facilities. Climate activists largely celebrate this commitment, while expressing concern for a just transition. Which of the following just transition programs will the activists most likely support?
At an international finance bank, a lack of staff clarity regarding sustainability, climate, and ESG definitions led to overlapping and inefficient initiatives. To minimize inefficiencies, the sustainability department develops new terminology for use across the bank.
What should the department include in this new terminology?
A West African energy company plans to expand beyond regional operations to markets throughout the continent. Executive leadership determines integrating SDGs into operations can help the company appeal to new consumers and political decision makers. The company CSO develops a strategy to promote the SDGs to external stakeholders.
What should the strategy include?
To achieve emissions reduction goals, a South American government considers policies other than carbon pricing to target carbon-intensive industries more effectively. The government intends to promote renewable power generation by implementing subsidies.
Which action should the government take to support this subsidy policy?
Organizers of an upcoming UN Climate Change Conference prepare a document highlighting successes and failures of climate accords over the last 20 years.
The document lists what success from the 2009 Copenhagen Accord?
A multinational food and beverage corporation has growing concerns that CO2 and other GHGs in the atmosphere have a negative effect on agricultural productivity. The corporation is subject to higher costs and scarce availability for commodities necessary for its supply chain.
The corporation will disclose this scenario under which climate-related risk type?
A team of climate risk specialists at a global non-profit research organization prepares a study on climate policy and achieving national climate change mitigation targets. The study focuses on actors, non-state and subnational (NSA) participants, and actions that can be taken to impact climate policy.
How should the team describe effective climate policy and climate change mitigation targets?
A senior portfolio analyst at a global asset management firm performs a portfolio review to identify assets that may be affected by climate risk. Preliminary findings show the firm heavily invests in food and beverage companies with high climate risk exposure due to extreme temperatures and droughts. In a report to senior management, the analyst notes the firm can improve portfolio performance by examining physical risk, as the firm currently focuses primarily on transition risk.
Which approach to examining physical risk at the portfolio level should the analyst recommend?
Which of the following technologies is most likely to be viewed by investors as a strategic solution to the decarbonization of high-temperature processes?
Leaders of an energy company meet to address physical and transition risks to company operations. At the meeting, the CRO recommends a strategy to mitigate physical climate risk to the company. Which of the following strategies will the CRO most likely recommend?
A natural gas production company makes a 2040 net-zero commitment. Before publicly announcing the commitment, the company sustainability team verifies the credibility and transparency of the company net-zero commitment to minimize any greenwashing claims. What action will the team most likely take to strengthen the credibility of the company net-zero commitment?
Which of the following is an example of a just’ transition with regards to climate change?
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