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Question 25

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?

    Correct Answer: A

    To assess physical risk at the portfolio level, one effective method is to analyze the best- and worst-in class of an index. This approach involves evaluating how companies within an index perform concerning climate risks, providing a comparative analysis that helps to understand the physical vulnerabilities and strengths of different assets.

Discussion
goodformeOption: A

Temperature score methodology -> Company-Level Transition Risk One relatively simple way of examining physical risk at portfolio level is to look at the best-and worst-in class of an index

ochownyOption: A

A is correct. P.134 "A simple approach to portfolio-level physical risk analysis".

SCRnowOption: A

Why are so many answers wrong on this page... A is correct. Answer B is clearly wrong. (ITR - Net Zero - Transition risk)