A private equity fund invests in infrastructure development and agro-industrial projects. The fund hires a team of climate risk consultants to advise on investment structure and the potential climate risks to the fund. The team recommends data types and analytical tools to evaluate physical and transition risk impact at the company level.
How should the company evaluate company-level physical risk?
To evaluate company-level physical risk, it is appropriate to develop company scores that combine proprietary methodologies with downscaled climate model data. This approach allows for a detailed and location-specific analysis of physical climate risks, providing granular insights into how climate change could impact specific assets and operations. This method is more suited for assessing physical risks compared to other options which may focus on financial losses or emissions categorization rather than the specific physical impact.
Imo it should be A. This is a justification for answer D in a similar question, #11, in GARP SCR 2023 official mock test: "CVaR gives a quantitative estimate of the expected financial losses or gains from climate risks and opportunities. (p. 134-135)"
Why not A? Standard Value at Risk is a metric for quantifying the level of financial risk in a firm, a portfolio, or a given investment. Hence cVAR includes both transition and physical risk as well as economic data and company-level data
Nvm. I just realised the ...'expected gains' which is not the function of VAR
For Physical Risk >>> B. Develop company scores that combine proprietary methodologies with downscaled climate model data.
6.5.2 Company-Level Physical Risk Data