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Question 51

The CRO for a large agriculture company reviews reference scenarios as part of an annual climate scenario analysis exercise. The CRO creates a transition risk matrix that compares four different scenarios - W, X, Y, Z. Scenarios are compared according to scale of emissions cuts and pace of emission cuts. Scale is depicted as business as usual (BAU) to net-zero. Pace is depicted as orderly to disorderly. The CRO uses this matrix to explain transition risk to the company’s executive members:

How should the CRO rank the reference scenarios from lowest level of transition risk to highest level of transition risk?

    Correct Answer: B

    The reference scenarios should be ranked based on the scale of emissions cuts and the pace of cuts. A scenario with business-as-usual (BAU) and orderly pace (Scenario Y) represents the lowest transition risk because there are minimal changes, maintaining the status quo. Conversely, a scenario with net-zero and disorderly pace (Scenario Z) represents the highest transition risk due to drastic and abrupt changes. Therefore, the ranking from lowest level of transition risk to highest level of transition risk should be Lowest = Y; Highest = Z.

Discussion
goodformeOption: A

Transition risk is higher when emissions are cut more drastically (net-zero emissions by 2050 scenario versus a current policies or business-as-usual scenario), and when emissions cuts are more abrupt (disor-derly versus orderly transition).

Gs2410Option: A

A is correct answer. No way D can be correct

RiskrOption: A

Answer is A. See the question 28 in the GARP-provided exam book.

KarnitschnigOption: A

the highest transition risk comes from disorderly transition, so highest has to be x or z. If things are orderly and BAU, there's almost no transition risk. So W is least risky. D is just so clearly wrong