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?
A risk manager implementing scenario analysis to assess climate risk will typically examine portfolio-level exposures in various climate outcomes. This approach involves evaluating how different climate scenarios, including both physical and transition risks, could impact the financial performance and risk profile of the investments within the portfolio. This helps the bank understand potential vulnerabilities and make strategic decisions to mitigate climate-related financial risks.
should be D. 7.5.1
Scenario Analysis has to be used to understand CLimate Risk and its impact. C can not be the answer.
C can't be right.
D seems correct, again a wrong options given as correct answer
An important use case of scenario analysis in the financial sector is to examine portfolio-level exposures, and gauge how these would vary in different climate outcomes (i.e., scenarios)
Scenario Analysis is used to see how the company or portfolio will do in various situations. It is not meant as a tool to gage probability of various events. Rather, we use inputs to know how likely the event is and then see the impact.