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GARP SCR Exam Practice Questions (P. 3)

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Question #11
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?
  1. A
    A company’s warehouse that is damaged by a tornado causes business interruption that results in loss of revenues and profits, which weakens the company’s ability to repay loans.
  2. B
    A mining company that extracts lithium for lithium-ion batteries benefits from higher commodity prices, which increases revenue and profits.
  3. C
    A company’s high-emissions factory is hit with a higher carbon tax that results in asset stranding, which causes the company to have less collateral to use to secure funding.
  4. D
    A bank’s customers withdraw deposits and draw on credit lines to finance cash-flow needed for recovery after damaging flooding, which increases loan-to-deposit ratios.

Correct Answer:
D

Question #12
An investment analyst assesses climate-related stranded asset risk for a portfolio of energy companies. The analyst develops a list of companies potentially exhibiting stranded asset risk. After a more granular examination, the analyst summarizes corporate activity in the following table:

The analyst identifies the company with the highest stranded asset exposure for possible divestment. Which company does the analyst recommend for divestment?
  1. A
    Utility
  2. B
    Oil & Gas
  3. C
    Technology startup
  4. D
    Hydroelectric

Correct Answer:
B

Question #13
A climate analyst at a research institution analyzes climate risk for various companies. The analyst examines transmission channels of climate risk as part of the risk identification process.
Which of the following examples can the analyst use to describe an operational risk transmission channel?
  1. A
    A damaging hurricane leads to a run on credit as affected communities need cash to fund recovery efforts.
  2. B
    Following a high carbon tax, a company strands high-emissions assets.
  3. C
    High commodity prices boost revenues for a mining company that extracts lithium.
  4. D
    Flooding damages an information technology company data center.

Correct Answer:
D

Question #14
In preparation for an upcoming global climate conference, organizers develop climate science training materials for business executives.
How should the training material compare anthropogenic and natural climate changes?
  1. A
    Human-caused warming is occurring much faster than natural warming after the last ice age.
  2. B
    Human-induced warming currently exhibits a nonlinear relationship with global CO2 levels, whereas natural warming shows a linear relationship.
  3. C
    Human activities slowed water vapor feedback, whereas natural climate changes do not alter water vapor balance.
  4. D
    Human activities caused temperature changes greater than any previous natural temperature changes.

Correct Answer:
D

Question #15
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?
  1. A
    A natural process in which the Earth’s oceans absorb the majority of non-reflected incoming solar energy
  2. B
    A natural process in which the Earth reflects three-quarters of incoming solar energy back into space
  3. C
    A human-driven process that is the main contributor for half of the sea-level rise in the past 200 years
  4. D
    A human-driven process in which the main contributor is the decrease in the albedo effect

Correct Answer:
D

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