Sustainability and Climate Risk - SCR Exam Practice Test

Question 1

The risk team for a multinational company, that operates and franchises hotel and timeshare properties, prepares talking points for an upcoming business continuity plan meeting. A key area for discussion are the risks that can impact the company's financial and reputational stability. The team recommends the company conduct climate-related scenario analysis and provides examples of scenarios and their use.
Which of the following is correct for the team to include as part of the talking points?

A. A company conducting scenario analysis should focus on either physical or transition risks to avoid inconsistent outcomes.

B. A company can internally develop its models and scenarios or make use of existing publicly available scenarios.

C. Scenario analysis allows a company to better understand its past performance by conducting a lookback analysis.

D. Scenario analysis should use a limited set of assumptions and constraints to reduce the risk of generalized scenario results.

Correct Answer: B

Question 2

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. ESG and sustainability risks are completely interchangeable.

B. Sustainability issues fall exclusively within climate change impacts.

C. ESG risks are broader than all sustainability risks.

D. Sustainability should include all governance and social risks.

Correct Answer: D

Question 3

A large European bank implements the PRB and hires an external auditor to assess implementation progress.
After an initial assessment, the auditor prepares recommendations to improve governance and culture practices within the bank. Which of the following actions did the external auditor most likely recommend?

A. Integrate ESG disclosures into existing bank reporting processes.

B. Use SDGs as a framework to evaluate the bank value creation model.

C. Publish bank commitments to the Paris Agreement.

D. Embed sustainability targets within employee remuneration and incentive programs.

Correct Answer: D

Question 4

A global commercial bank assesses the potential impact of physical climate risk on its project finance portfolio. The bank will grow the project portfolio and invest heavily in assets with the lowest risk. A bank risk manager examines how physical risk can transmit into the financial performance of portfolio assets. How should the risk manager evaluate these assets?

A. Respond effectively to the rising cost of complying with international climate regulations.

B. Assess potential overvaluation of properties in areas currently insulated from extreme weather events.

C. Identify how uninsured losses from extreme weather events may increase default risk.

D. Develop a plan for the company to diversify its portfolio into renewable energy.

Correct Answer: C

Question 5

An economist at a large US state pension fund assesses transition risk and opportunities in response to pensioner requests that the fund increase transparency on climate strategies. The economist uses IAMs to inform this analysis.
Which of the following will the economist most likely demonstrate by using IAMs?

A. Agreement among climate projections

B. Economically efficient paths to limit warming below 2°C

C. Which SSP is a feasible emission trajectory for each RCP

D. The remaining carbon budget for each investment

Correct Answer: B

Question 6

A global cosmetics company surveys consumers. The survey reveals close to 75% of consumers indicate sustainability is an important issue and are willing to change shopping habits to reduce environmental impact.
The company responds by establishing a sustainability framework. As part of the process to implement this framework, a company sustainability analyst identifies sustainable investment and disclosure practices.
Which recommendation will the analyst likely make to implement a company sustainability framework?

A. Use the EU Taxonomy for classifying products as "green" when doing business in the EU market but develop new classification systems for jurisdictions outside the EU.

B. Incorporate mandatory disclosures and marketing requirements to ensure claims about sustainable products are fair and not misleading.

C. Follow NGFS sustainability best practices and verify company products and activities are considered sustainable through NGFS recommended voluntary disclosures.

D. Conduct internal audits annually and disclose any greenwashed product findings to government green finance taskforces.

Correct Answer: B

Question 7

A senior sustainability consultant at an African think tank explains the complexities of different Earth science systems to a group of ESG practitioners as part of the think tank's continuing education program.
Which of the following statements by the sustainability consultant accurately describes the Earth's greenhouse effect?

A. A human-driven process that is the main contributor for half of the sea-level rise in the past 200 years

B. A natural process in which the Earth's oceans absorb the majority of non-reflected incoming solar energy

C. A human-driven process in which the main contributor is the decrease in the albedo effect

D. A natural process in which the Earth reflects three-quarters of incoming solar energy back into space

Correct Answer: C

Question 8

Which of the following greenhouse gases (GHGs) has the longest lifetime in the atmosphere?

A. Fluorinated gas

B. Carbon dioxide

C. Methane

Correct Answer: A

Question 9

A coalition of African central banks reviews member bank prudential policies for alignment with climate- related financial risk mitigation. To shape the coalition's climate risk and business continuity planning objectives, coalition leaders review key risk metrics. Which of the following metrics will the coalition most likely use to evaluate operational risk due to climate change?

A. Loss given default

B. Bank preparedness level

C. Changes in insurance premiums

D. Carbon intensity

Correct Answer: B

Question 10

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?

A. Set 2019-2022 NDCs at a smaller scale to comply with the "ratchet" mechanism.

B. Aligned the first round of NDCs with a 2°C warming limit, followed by a second round of a 1.5°C limit.

C. Tighten NDCs and report NDC progress every 5 years at COP meetings.

D. Revise NDC targets annually and submit to the UN for review and approval.

Correct Answer: B

GARP Sustainability and Climate Risk - SCR Exam Practice Test

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