GARP SCR Exam Questions

Question 6 of 61

A large insurance company in South America expands use of climate scenario analysis. The company used RCPs in previous scenario analyses but now hires an actuary with climate expertise to incorporate SSPs in this process.

How can the actuary advise the insurance company use SSPs going forward?

A.

Demonstrate how SSP and RCP trajectories typically show contradictory emissions trend trajectories.

B.

Combine SSPs with different RCPs to assess climate policy options.

C.

Eventually replace SSPs with RCPs by integrating underlying data assumptions.

D.

Use SSPs to provide alternative emissions pathways to RCPs.

Correct Answer: B

The actuary can advise the insurance company to combine SSPs with different RCPs to assess climate policy options. SSPs (Shared Socioeconomic Pathways) provide different socioeconomic development trajectories, whereas RCPs (Representative Concentration Pathways) provide different greenhouse gas concentration trajectories. By combining SSPs with RCPs, the company can explore a wider range of future scenarios and better understand the impacts of various climate policies.

Question 7 of 61

A climate risk consultant advises an Eastern European central bank. In response to regulatory changes, the bank will incorporate climate-related risks into bank policies. The consultant writes a summary on how central banks incorporated climate-related risks into policies. The summary highlights the Bank of England (BoE) example to demonstrate how the BoE integrated climate-related risks within the bank supervisory scope.

Which of the following BoE practices will the consultant recommend?

A.

Integrate climate-related risks into bank monetary policy before attempting to integrate climate into other areas of bank operations.

B.

Obligate firms to allocate responsibility for climate-related risks using a bottom-up approach where the risk team assesses climate risks while the board of directors approves or denies.

C.

Require banks and insurers include all material exposures relating to financial risks from climate change under capital adequacy and solvency assessments.

D.

Adopt a policy that requires firms to submit climate risk disclosures that precisely follow NGFS guidelines.

Correct Answer: C

The Bank of England requires banks and insurers to include all material exposures related to financial risks from climate change in their capital adequacy and solvency assessments. This practice ensures that financial institutions are adequately accounting for the impact of climate-related risks on their financial health.

Question 8 of 61

A sustainability analyst for a global food and beverage company tracks ESG metrics to report to investors. The analyst meets with company leaders of different business units to explain criteria and indicator types for each ESG component.

To address each component, which metrics will the analyst socialize with company leaders?

A.

Carbon dioxide emissions; labor conditions of agricultural workers; board diversity

B.

Environmental health and safety record; adherence to code of ethics; risk management protocols

C.

Water use efficiency; employee retention and satisfaction; community engagement

D.

Energy use; GHG intensity reduction; executive leadership compensation

Correct Answer: A

The key to addressing each ESG (Environmental, Social, Governance) component lies in identifying metrics that pertain to each of these three areas distinctly. Option A includes carbon dioxide emissions (an environmental metric), labor conditions of agricultural workers (a social metric), and board diversity (a governance metric). These metrics clearly and specifically represent each of the three ESG components, making it the most appropriate choice.

Question 9 of 61

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?

A.

Utility

B.

Oil & Gas

C.

Technology startup

D.

Hydroelectric

Correct Answer: D

The company likely recommended for divestment is the Hydroelectric company. This company has shut down dam operations before the end of its useful life due to sustained droughts throughout a river basin, indicating a high level of stranded asset exposure. This demonstrates a substantial impact due to climate-related risks that have already materialized, making the assets effectively stranded.

Question 10 of 61

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?

A.

A damaging hurricane leads to a run on credit as affected communities need cash to fund recovery efforts.

B.

Following a high carbon tax, a company strands high-emissions assets.

C.

High commodity prices boost revenues for a mining company that extracts lithium.

D.

Flooding damages an information technology company data center.

Correct Answer: D

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. Flooding damaging an information technology company data center is a clear example of an operational risk, as it directly impacts the operations of the company due to an external physical event. This aligns with how operational risks are typically defined and identified, where the emphasis is on the disruption to business operations and processes.