2021

Practice Exam
Table of Contents
Introduction ............................................................................................................................................... 3
Definitions ................................................................................................................................................... 4
Candidate Answer Sheet ........................................................................................................................ 5
Questions .................................................................................................................................................... 6
Answer Key ................................................................................................................................................ 13
Answers & Explanations ......................................................................................................................... 14

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 Updated as of February 22, 2021

Introduction to 2021 SCR Practice Exam

The Sustainability & Climate Risk (SCR) Exam is practice oriented. Exam questions reflect theory,
set forth in program readings, along with true-to-life work experience. Candidates must
understand sustainability and climate risk concepts and apply these approaches in a real-life
setting. The program curriculum covers essential skills and knowledge areas necessary to
understand the rapidly evolving risk landscape of today. The SCR Exam is comprehensive in
nature, testing candidates on a number of sought-after SCR standards and mechanisms.
The 2021 SCR Practice Exam was developed to aid candidates in preparation for the multiple-
choice 80-question SCR Exam offered in 2021. This Practice Exam includes sample questions
suggestive of questions included on 2021 SCR Exams. The 20 multiple-choice questions included
in the Practice Exam do not necessarily cover all topics tested in the 2021 SCR Exams, as the
curriculum includes a wide array of learning objectives. The questions selected for the Practice
Exam broadly reflect material assigned for 2021 and represent a multiple-choice question style
the SCR Advisory Committee considers appropriate.
For a complete list of current topics, core readings, and key learning objectives, candidates must
refer to the 2021 SCR Study Guide and Learning Objectives document available on
www.garp.org/#!/scr/study-materials. Questions for the SCR Exam are supported by the
curriculum readings. The SCR Advisory Committee selected these readings to guide candidates’
review of subjects covered by the SCR Exam.

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 Definitions

CAR = carbon asset risk Industry Catalogue = NDCR Green Industry

Guiding Catalogue

CCS = carbon capture and storage

IPCC = Intergovernmental Panel on Climate
Change
CO2 = carbon dioxide

NGFS = Network for Greening the Financial

CO2eq = carbon dioxide equivalent System

CVaR = Climate Value at Risk ppm = parts per million

ESG = environmental, social, and PRB = Principles for Responsible Banking

governance

PRI = Principles for Responsible Investment

ETS = emission trading system

Project Catalogue = PBC Green Bond

EU Taxonomy = The EU Sustainable Endorsed Project Catalogue
Finance Taxonomy

SDG(s) = Sustainable Development Goal(s)

GHG = greenhouse gas

TCFD = Task Force on Climate-related

IAM(s) = integrated assessment model(s) Financial Disclosures

IEA = International Energy Agency UN = United Nations

IIGCC = The Institutional Investors Group on UNEP FI = United Nations Environment

Climate Change Programme Finance Initiative

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Candidate Answer Sheet

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 Questions

1. To better serve clients, a senior manager at a consulting firm specializing in supply chain management
wants to become more familiar with the basics of climate science. Currently, the manager is reviewing the
relationship between GHGs and their connection to human activity. Which of the following would the
manager consider to be correct?

A. The primary GHG generated by human activity is nitrous oxide (N 2O), which mainly comes from
changes to land use such as deforestation.

B. Even in the absence of human caused GHGs, the Earth would currently still be in a period of global
warming.

C. While the current absolute carbon dioxide (CO2) level is unprecedented, the rate of change of CO 2
levels has not increased when comparing preindustrial and present-day time periods.

D. Several strong positive feedbacks have been observed whereby warming driven by human-caused
GHGs can result in more GHGs being emitted into the atmosphere.

2. A consultant has recently been engaged to provide an overview of how climate change risk can impact
firms and lead to financial risk. In preparing the overview, which of the following should the consultant
consider to be correct?

A. Although physical risk will likely have a small direct impact on a very small sector of the global
economy, transition risk is expected to have a widespread impact on many sectors and industries.

B. A real estate investment firm has an indirect exposure to transition risk due to an increased severity of
flooding if property values held as collateral against loans decrease and the loss given default increases.

C. A manufacturing firm has an exposure to transition risk if the cost of carbon emissions needs to be
priced into manufactured products, increasing construction and transportation costs, and thereby
reducing the profitability of the firm.

D. Banks that provided loans to coal-fired power plants could have indirect physical risk exposure due to
stranded assets if a government policy forced the plants to stop production.

3. A senior risk analyst is reviewing the scenario design process for a climate risk assessment of a real
estate insurance company. Which of the following correctly describes the first step in the scenario design
process?

A. Determine the desired scenario outputs for analysis using various models.

B. Construct appropriate narratives for the underlying assumptions around the climate, the economy, and
societies.

C. Integrate a standardized set of pre-determined variables to construct a model.

D. Conduct a preliminary analysis of outputs to be used within only one sector-specific model.

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4. A junior sustainability researcher is exploring companies that have carried out natural capital
assessments to better understand how companies leverage the assessments in their practices and
decision making. Which of the following would the researcher consider to be correct?

A. There is strong evidence that natural capital assessments drive sustainability improvements for
companies that were not observing good sustainability practices.

B. A drawback of natural capital assessments is that they are still unable to help companies understand
their vulnerabilities to climate change, since natural capital risks are difficult to identify in the
assessments.

C. Companies that use natural capital assessments tend to see restricted results since the assessments
are narrow in their choice of scope, primarily using GHGs as the impact/dependency.

D. Natural capital assessments allow companies to ascribe monetary value to natural capital, which can
lead to further promotion of sustainable practices by a company.

5. A maritime shipping company that uses diesel as a fuel source is experiencing a decrease in cargo
shipment orders due to reduced demand for its carbon-intensive service. Which of following correctly
explains how the climate risk faced by the company can lead to credit risk in this situation?

A. The physical risk the company faces could reduce the value of assets it uses as collateral.

B. The physical risk the company faces could lead to a decline in operating cashflows.

C. The transition risk the company faces could hinder its ability to service its debt.

D. The transition risk the company faces could cause supply chain disruptions.

6. An analyst at a solar panel manufacturing company is studying the characteristics of sustainability-

linked loans (SLLs) and green loans. Using the Green Loan Principles as a reference, which of the
following should the analyst consider to be correct?

A. An SLL offers margin incentives based on sustainability performance where, unlike green loans, the
use of loan proceeds is not a factor.

B. An SLL and a green loan both must follow compulsory frameworks to protect the instrument’s integrity
and be verified as an SLL and a green loan, respectively.

C. An SLL has a strict monitoring procedure due to external review requirements, but a green loan does
not have such requirements.

D. An SLL must always have a social component in the underlying project, while it is not required that the
proceeds of a green loan must be used to finance a green project.

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7. ABC Holdings is a consumer goods company in the food and beverage industry, with joint operations
around the world. Which GHG consolidation approach is likely to have lower administrative costs for ABC
Holdings to account for GHG emissions?

A. Equity share approach

B. Control approach

C. Performance tracking approach

D. Scope accounting approach

8. A senior risk analyst at an investment bank is estimating the credit risk impact of climate change using
various methodologies. Which of the following would the analyst correctly note as a methodological
aspect of identifying the relevant climate risk exposure metrics?

A. Carbon footprints primarily provide information about a firm’s physical risk exposure.

B. Carbon footprints only comprise a firm’s direct emissions and exclude emissions by its suppliers and
customers.

C. Current carbon emissions can give an indication of exposures but do not provide insight into the ability
of households and firms to reduce their emissions.

D. Locational data on household assets or a firm’s production sites, suppliers, and customers provides
only minimal insights on climate transition risk exposure.

9. A risk analyst is exploring the potential impacts of climate change on several shipping and air-cargo
firms whose businesses are heavily dependent on trans-Atlantic trade. One issue the analyst is
concerned about is the potential impact of climate change on the jet stream. Which of the following
situations correctly illustrates how Arctic amplification affects the jet stream and thereby weather in the
Northern Hemisphere?

A. Slowing down the jet stream's east-to-west winds and promoting larger north-south meanders in its
flow

B. Slowing down the jet stream's west-to-east winds and promoting larger north-south meanders in its
flow

C. Speeding up the jet stream's east-to-west winds and promoting shallower north-south meanders in its
flow

D. Speeding up the jet stream's west-to-east winds and promoting shallower north-south meanders in its
flow

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10. A sustainability officer at a multinational firm is studying the guiding principles of the EU Sustainable
Finance Taxonomy (the Taxonomy), the NDRC Green Industry Guiding Catalogue (the Industry
Catalogue), and PBC Green Bond Endorsed Project Catalogue (the Project Catalogue). Which of the
following would the officer find to be correct about these green taxonomies?

A. Unlike the other taxonomies, the Project Catalogue does not explicitly define any environmental
objectives but does provide specific purposes for the green bond market such as defining green bonds
and regulating the green development of the green bond market.

B. The Industry Catalogue and the Taxonomy both illustrate the relationship among environmental
objectives to provide clear guidelines on whether a project is recognized as green based on the project’s
overall environmental benefits.

C. Unlike the other taxonomies, the Industry Catalogue focuses on environmental policies by providing
background details and policy frameworks to support the reorientation of capital flows towards
environmentally sustainable activities.

D. The Industry Catalogue and Project Catalogue highlight climate change while the Taxonomy does not,
and their aims are to meet the goals of the Paris agreement.

11. A utility company purchases electricity from independent power producers and resells it to end
consumers through a transmission and distribution (T&D) system that it owns and controls. The company
reports the emissions from its purchased electricity as part of its GHG accounting and reporting. Which of
the following is correct regarding the company’s operational accounting for emissions from the purchased
electricity that is consumed within the T&D system?

A. Emissions are reported as scope 1 since the company purchased electricity from independent T&D
power generators.

B. Emissions are reported as scope 1 since the company resold the electricity to third party end users.

C. Emissions are reported as scope 2 since the company accounts for activities upstream of its electricity
provider.

D. Emissions are reported as scope 2 since the company owns and controls the T&D operation.

12. A policy analyst at a research institute is preparing a high-level overview of the concept of “stranded
assets” and the risks that can lead to stranded assets. In preparing the overview, which of the following
should the analyst consider to be correct?

A. Consumer behavior that pushes for a growth in product certification schemes can cause stranded
assets.

B. Stranded assets can be caused only by factors relating to climate change or the environment.

C. Most of asset stranding is caused by weather-related physical risks that damage property and assets.

D. While climate related asset stranding is expected to have a significant impact on developed countries,
its impact on developing countries is expected to be negligible.

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13. The treasurer of a large manufacturing company is considering “green” financing alternatives for
some large pollution control projects that are planned to launch over the next 18 months. In reviewing the
voluntary Green Bond Principles, which of the following would the treasurer find to be correct?

A. Issuance proceeds cannot be used to refinance an existing bond, regardless of what the proceeds of
the original bond had been used for.

B. Including second party opinions about the issuer’s project evaluation process in communications to
investors is encouraged.

C. To encourage a green investment philosophy throughout the organization, green bond proceeds
should not be segregated into sub-accounts.

D. As performance metrics for green financing and green projects vary widely, disclosing results based on
quantitative performance measures is discouraged.

14. Which of the following statements correctly describes most current physical risk assessment
methodologies?

A. The methodologies avoid covering acute hazards of climate change while focusing on chronic hazards.

B. The methodologies avoid covering hazards due to frequency of extreme weather events.

C. The methodologies use a scenario with a pathway illustrating more than 4°C of warming relative to
pre-industrial temperatures.

D. The methodologies use a scenario that covers the entire value chain of the counterparties they
examine in depth.

15. The CRO of a commercial bank is considering how to implement the TCFD’s recommendations
related to forward-looking scenario-based assessments of climate-related risks and opportunities. In
reviewing the TCFD recommendations as well as the results of pilot implementation studies done by other
banks, which of the following should the CRO consider to be correct?

A. It is important to include a borrower’s current insurance coverage as an ongoing mitigant when

evaluating future climate risk exposure.

B. To account for the inherent uncertainty in climate and sector impact models, an average of potential
climate change impacts should be used when assessing sector productivity.

C. For some industry sectors, it is reasonable to assume a negative correlation between revenue and
cost of goods sold in response to extreme events.

D. As it is difficult to retroactively change the terms of residential mortgages after they are issued, altering
loan-to-value ratios for residential mortgage portfolios is generally not considered when assessing climate
change impacts.

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16. An advisor to a government official in the treasury department is preparing a presentation on the basic
aspects of climate change. If included in the presentation, which of the following correctly describes a
major determinant of global mean surface warming, which leads to climate stabilization or climate
destabilization?

A. Cumulative emissions of CO2 and CO2eq gases

B. Cumulative melting of the Greenland and Antarctic ice sheets

C. Increases or decreases in the daily reflectivity of Earth’s surface

D. Increases or decreases in the level of ocean acidification

17. A sustainability analyst working for an airline is preparing a report on carbon pricing to better
understand the forms of GHG emissions trading systems (ETS), after the news that the countries the
airline operates in are planning to implement an ETS. Which of the following would be correct for the
analyst to include in the report?

A. In a ‘baseline-and-credit’ system, a carbon tax rate is set that is equal to the estimated benefit of
reducing GHG emissions by the social cost of carbon and allows companies to collect credits for reducing
emissions.

B. In a ‘baseline-and-credit’ system, a tax rate on carbon can be phased in over time and adjusted
regularly for the effects of inflation, technological change, and other factors.

C. In a ‘cap-and-trade’ system, an emissions limit is set for each participant and tradable credits are
allocated to emitters whose actual emissions are less than their limit.

D. In a ‘cap-and-trade’ system, an aggregate emissions limit is set and tradable allowances are
distributed to regulated emitters approximately equal to the limit.

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18. An equity portfolio analyst has been asked to calculate the portfolio carbon intensity of a two-asset
portfolio with the following characteristics:

Company Company Company

Current Value of Market Capitalization Revenue GHG Emissions
Asset Investment (USD) (USD) (USD millions) (tCO2e)
1 5,000,000 200,000,000 150 8,000
2 20,000,000 400,000,000 50 2,000

Which of the following is closest to the correct portfolio carbon intensity in tCO2e/USD million?

A. 48

B. 50

C. 93

D. 300

19. Which of the following circumstances would be difficult to depict or reproduce within an integrated
assessment model?

A. A slow change in energy consumption

B. A rapid change in energy consumption

C. Scaling up existing and known technology processes

D. System transformation pathways for 1.5℃ compatible scenarios

20. The NGFS has six recommendations for central banks and supervisors to address climate-related
risks in the financial system. Which of the following is a correct characteristic of climate change that the
NGFS considers?

A. There is currently no mature technology sector capable of reversing GHG emissions and their
corresponding impact on Earth.

B. There is limited confidence that a combination of physical and transition risks will manifest in the future.

C. There is a growing consensus that climate-related risks are fully reflected in asset valuations.

D. Current macroeconomic models can accurately estimate the financial impacts of climate change.

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 Answer Key

1. D
2. C
3. B
4. D
5. C
6. A
7. B
8. C
9. B
10. A
11. D
12. A
13. B
14. C
15. C
16. A
17. D
18. A
19. B
20. A

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 Answers & Explanations

1. To better serve clients, a senior manager at a consulting firm specializing in supply chain management
wants to become more familiar with the basics of climate science. Currently, the manager is reviewing the
relationship between GHGs and their connection to human activity. Which of the following would the
manager consider to be correct?

A. The primary GHG generated by human activity is nitrous oxide (N 2O), which mainly comes from
changes to land use such as deforestation.

B. Even in the absence of human caused GHGs, the Earth would currently still be in a period of global
warming.

C. While the current absolute carbon dioxide (CO2) level is unprecedented, the rate of change of CO 2
levels has not increased when comparing preindustrial and present-day time periods.

D. Several strong positive feedbacks have been observed whereby warming driven by human-caused
GHGs can result in more GHGs being emitted into the atmosphere.

Correct answer: D

Explanation: D is correct. While no negative feedback has been found, a number of strong positive
feedbacks have been observed where warming, driven by GHGs, can cause more GHGs to be emitted
into the atmosphere. An example is that climate change leads to more forest fires, then CO 2 is released
by burning trees which acts an amplifying feedback, which then causes more climate change.

A is incorrect. The primary GHG generated by human activity is carbon dioxide (CO2). Deforestation (an
example of changes to land use), makes up some of the human-caused CO2. On the other hand, major
sources of nitrous oxide (N2O) include agriculture and combustion of fossil fuels and solid waste.

B is incorrect. It is noted that absent human-caused GHGs, the Earth would be expected to be in a period
of global cooling right now. The amount of total warming the planet has experienced since 1900 is
inconsistent with the temperature with the temperature change one would expect from the observed
natural changes.

C is incorrect. It is not just the absolute CO2 level that is unprecedented in the experience of modern
humans, but also the rate of change of CO2 levels that is unprecedented. The rate of change is greater
when factoring in the modern human experience.

Module: 1 Foundations of Climate Change: Science and Global Response

Knowledge point: Introduction to Earth science systems: greenhouse effect, global warming, climate
change

Learning objective: Define greenhouse gases and describe their connection to human activity and
energy use.

Reference: Chapter 1: Climate Science Basics (pages 1-15) Romm, J. J.

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2. A consultant has recently been engaged to provide an overview of how climate change risk can impact
firms and lead to financial risk. In preparing the overview, which of the following should the consultant
consider to be correct?

A. Although physical risk will likely have a small direct impact on a very small sector of the global
economy, transition risk is expected to have a widespread impact on many sectors and industries.

B. A real estate investment firm has an indirect exposure to transition risk due to an increased severity of
flooding if property values held as collateral against loans decrease and the loss given default increases.

C. A manufacturing firm has an exposure to transition risk if the cost of carbon emissions needs to be
priced into manufactured products, increasing construction and transportation costs, and thereby
reducing the profitability of the firm.

D. Banks that provided loans to coal-fired power plants could have indirect physical risk exposure due to
stranded assets if a government policy forced the plants to stop production.

Correct answer: C

Explanation: C is correct. The transition to a low-carbon economy can have indirect impacts to many
industries, such as manufacturing. If the cost of carbon emissions needs to be priced into manufactured
products, construction costs can also increase from the use of coal in the manufacturing process. This
would also increase transport costs (e.g., diesel and petrol-based), which would increase transporting
products to market. The profitability of the manufacturer would be reduced as the manufacturing firm
would see their profitability of default increase, thereby reducing the market value of the manufacturer.

A is incorrect. Transition risk and physical risk are both expected to be relevant across many sectors, not
just a small sector of the global economy.

B is incorrect. An increase in the frequency and severity of storms is a direct effect of physical risk.
Commercial real estate is impacted as properties experience more severe flooding. The value of
properties that are held as collateral against loans will decrease, as the loss given default increases if a
customer cannot repay his/her loan.

D is incorrect. Stranded assets are an example of a direct effect of transition risk. If coal reserves need to
stay in the ground, this can create stranded assets (assets that will be written down or written off before
the end of their useful life). A change in government policy that would force coal-fired power plants to stop
production, could result in losses to banks that have provided loans to these companies.

Module: 4 Climate Risk Measurement and Management

Knowledge point: Manifestation in traditional risk types

Learning objective: Explain how transition risks and physical risks can affect firms and lead to financial
risk.

Reference: Chapter 31: Climate Risk Management at Financial Firms (pages 379-387) Paisley, J.,
and Nelson, M.

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3. A senior risk analyst is reviewing the scenario design process for a climate risk assessment of a real
estate insurance company. Which of the following correctly describes the first step in the scenario design
process?

A. Determine the desired scenario outputs for analysis using various models.

B. Construct appropriate narratives for the underlying assumptions around the climate, the economy, and
societies.

C. Integrate a standardized set of pre-determined variables to construct a model.

D. Conduct a preliminary analysis of outputs to be used within only one sector-specific model.

Correct answer: B

Explanation: B is correct. The first step in scenario design is constructing appropriate narratives for
underlying assumptions around the climate, the economy, and societies.

A is incorrect. This is not the first step in the scenario design process, which is to construct appropriate
narratives for underlying assumptions around the climate, the economy, and societies. After these
assumptions are constructed, they then can be translated into consistent scenario outputs for analysis
using various models, such as sector-specific models or integrated assessment models.

C is incorrect. Choosing variables is not a first step in scenario design. Determining variables will come
after constructing appropriate narratives for underlying assumptions around the climate, the economy,
and societies. Which variables enter the model as assumptions, and which are determined within the
model, will depend on the model at hand and its focus areas.

D is incorrect. Analysis of outputs is not a first step in scenario design, as outputs are created after
scenario analysis. Underlying assumptions can be translated into consistent scenario outputs for analysis
using various models, ranging from sector- and physical hazard-specific models to IAMs.

Module: 5 Climate Scenario Analysis

Knowledge point: Developing and applying scenario analysis

Learning objective: Delineate the process for designing a scenario analysis for assessing climate risk.

Reference: Chapter 44: Changing Course (pages 627-655) UNEP Finance Initiative.

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4. A junior sustainability researcher is exploring companies that have carried out natural capital
assessments to better understand how companies leverage the assessments in their practices and
decision making. Which of the following would the researcher consider to be correct?

A. There is strong evidence that natural capital assessments drive sustainability improvements for
companies that were not observing good sustainability practices.

B. A drawback of natural capital assessments is that they are still unable to help companies understand
their vulnerabilities to climate change, since natural capital risks are difficult to identify in the
assessments.

C. Companies that use natural capital assessments tend to see restricted results since the assessments
are narrow in their choice of scope, primarily using GHGs as the impact/dependency.

D. Natural capital assessments allow companies to ascribe monetary value to natural capital, which can
lead to further promotion of sustainable practices by a company.

Correct answer: D

Explanation: D is correct. Natural capital (defined as the world’s stocks of natural assets, which include
geology, soil, air, water, and all living things) assessments show the impacts and dependencies that
companies have upon natural capital. By assigning monetary value to natural capital, companies can
increase natural capital’s visibility, and this could potentially promote sustainable practices for the
companies.

A is incorrect. The evidence is not clear as to whether monetary natural capital assessment
is having positive impacts on natural capital. While private sector organizations can drive sustainability
improvements, there is limited empirical evidence that monetary natural capital assessment has so far
motivated these kinds of real-world actions. Monetary assessments have been carried out mainly by
companies with pre-existing sustainability programs, so it is difficult to identify which improvements have
been obtained by the assessment, and if the benefit may be lower in companies that are already
observing sustainability good practices.

B is incorrect. Assessments have enabled companies to identify natural capital risks. Costs to companies
may increasingly become internalized in the future. An example is given of Nespresso, which was
interested in understanding the vulnerabilities to its supply chains due to climate change. This is one
example of internalized costs that vary by sector and by natural capital type.

C is incorrect. Companies in the case studies that performed natural capital assessments varied
substantially in their choice of scope. The assessment focus varied from a single product to a whole
sector. GHGs are just one example of an impact/dependency from a larger list used in case studies.

Module: 6 Current Issues in Sustainability and Climate Risk

Knowledge point: Natural capital

Learning objective: Discuss how a natural capital assessment, once completed, can be utilized by
businesses.

Reference: Chapter 41: Monetary Natural Capital Assessment in the Private Sector (705-711)
Pritchard, R., and van der Horst, D.

17
5. A maritime shipping company that uses diesel as a fuel source is experiencing a decrease in cargo
shipment orders due to reduced demand for its carbon-intensive service. Which of following correctly
explains how the climate risk faced by the company can lead to credit risk in this situation?

A. The physical risk the company faces could reduce the value of assets it uses as collateral.

B. The physical risk the company faces could lead to a decline in operating cashflows.

C. The transition risk the company faces could hinder its ability to service its debt.

D. The transition risk the company faces could cause supply chain disruptions.

Correct answer: C

Explanation: C is correct. Reduced demand for carbon-intensive products and services is a result of a
change in market preference brought about by a transition towards greener consumption. Credit risk is
defined as the risk of a financial loss resulting from a borrower’s failure to repay part of or all the interest
and the principal of a loan. A loss in business resulting from reduced customer demand could reduce
revenue and hinder the company’s ability to service its debt.

A is incorrect. The source of climate-related financial risk given in the example is that of the transition type
and not the physical type. There is also no mention of a decrease in value of the collateral that backs any
loans.

B is incorrect. While operating cashflows might decline, the source of the climate-related financial risk
stems from the transition type and not the physical type.

D is incorrect. This is an example of how physical risk can negatively impact the company’s cash flows. It
is not clear what impact, if any, it would have on its supply chain.

Module: 4 Climate Risk Measurement and Management

Knowledge point: Approaches to measuring climate-related risks

Learning objective: Explain how climate risks translate into credit risks.

Reference: Chapter 34: Integrating Climate Risks into Credit Risk Assessment (pages 408-418)
Monnin, P.

18
6. An analyst at a solar panel manufacturing company is studying the characteristics of sustainability-
linked loans (SLLs) and green loans. Using the Green Loan Principles as a reference, which of the
following should the analyst consider to be correct?

A. An SLL offers margin incentives based on sustainability performance where, unlike green loans, the
use of loan proceeds is not a factor.

B. An SLL and a green loan both must follow compulsory frameworks to protect the instrument’s integrity
and be verified as an SLL and a green loan, respectively.

C. An SLL has a strict monitoring procedure due to external review requirements, but a green loan does
not have such requirements.

D. An SLL must always have a social component in the underlying project, while it is not required that the
proceeds of a green loan must be used to finance a green project.

Correct answer: A

Explanation: A is correct. SLLs are a type of loan where the borrower is incentivized, typically, through
margin, to meet ambitious, predetermined sustainability performance targets. If a borrower meets the
predetermined target, there is a discount in the borrower’s cost of borrowing. Unlike green loans, the use
of loan proceeds is not a factor for SLLs.

B is incorrect. SLLs and green loans are not voluntary per se, but the Green Loan Principles and the
Sustainability-Linked Loan Principles are both voluntary standard frameworks.

C is incorrect. Monitoring procedures and external review are recommended and/or obligatory for both an
SLL and a green loan (as recommended in the Green Loan Principles).

D is incorrect. An SLL may have a social component in the underlying project, but it is not a requirement.
On the other hand, the proceeds of a green loan must be used re/finance a green project.

Module: 3 Green and Sustainable Finance: Instruments and Markets

Knowledge point: Green bonds, green loans, and other products

Learning objective: Distinguish between green loans and sustainability-linked loans.

Reference: Chapter 24: 8 Things You Need to Know About: Sustainable Finance (pages 277-279)
LSTA.

19
7. ABC Holdings is a consumer goods company in the food and beverage industry, with joint operations
around the world. Which GHG consolidation approach is likely to have lower administrative costs for ABC
Holdings to account for GHG emissions?

A. Equity share approach

B. Control approach

C. Performance tracking approach

D. Scope accounting approach

Correct answer: B

Explanation: B is correct. Companies are likely to have better access to operational data and would incur
less cost when reporting on the basis of control.

A is incorrect. The equity share approach results in higher administrative costs than the control approach
since it can be difficult and time consuming to collect GHG emissions data from joint operations not under
the control of the reporting company.

C is incorrect. Performance tracking is not a cost-effective consolidation approach because it is first and
foremost not a GHG emissions consolidation approach introduced by the GHG Protocol. It refers to
tracking a company’s performance against GHG emission targets and low-carbon goals.

D is incorrect. The scope accounting approach refers to the operational accounting and reporting of
direct, indirect, and other GHG emissions. It is not a GHG emissions consolidation approach, but rather a
delineating accounting of emissions.

Module: 2 Policy, Regulations, and Implications

Knowledge point: Greenhouse gas (GHG) emissions accounting and reporting principles

Learning objective: Assess the differences between GHG accounting and GHG reporting when
consolidating GHG data.

Reference: Chapter 18: Setting Organizational Boundaries (pages 213-220) World Business Council
for Sustainable Development and World Resources Institute.

20
8. A senior risk analyst at an investment bank is estimating the credit risk impact of climate change using
various methodologies. Which of the following would the analyst correctly note as a methodological
aspect of identifying the relevant climate risk exposure metrics?

A. Carbon footprints primarily provide information about a firm’s physical risk exposure.

B. Carbon footprints only comprise a firm’s direct emissions and exclude emissions by its suppliers and
customers.

C. Current carbon emissions can give an indication of exposures but do not provide insight into the ability
of households and firms to reduce their emissions.

D. Locational data on household assets or a firm’s production sites, suppliers, and customers provides
only minimal insights on climate transition risk exposure.

Correct answer: C

Explanation: C is correct. For transition risks, current carbon emissions give an indication of exposures
but remain mute on the ability of households and firms to reduce their emissions and, in the case of
companies, to pass on higher carbon costs to their customers.

A is incorrect. Carbon footprints do not deliver any information about the physical risks that firms face.
They also neither reflect information of a firm’s possibilities to switch to low-carbon technologies, nor of its
preparedness to do so and its ability to pass on higher costs to its customers.

B is incorrect. Current measures of corporate carbon footprints often comprise a firm’s direct emissions
(Scope 1) and the emissions for the energy it uses (Scope 2) and thus fall short of covering emissions
across the entire value chain of a firm including those by its suppliers and its customers (Scope 3).

D is incorrect. This data collection provides valuable insights for physical risk impacts of climate change,
not transition risk.

Module: 4 Climate Risk Measurement and Management

Knowledge point: Approaches to measuring climate-related risks

Learning objective: Describe the methodological challenges in estimating the credit risk impact of
climate change.

Reference: Chapter 34: Integrating Climate Risks into Credit Risk Assessment (pages 408-418)
Monnin, P.

21
9. A risk analyst is exploring the potential impacts of climate change on several shipping and air-cargo
firms, whose businesses are heavily dependent on trans-Atlantic trade. One issue the analyst is
concerned about is the potential impact of climate change on the jet stream. Which of the following
situations correctly illustrates how Arctic amplification affects the jet stream and thereby weather in the
Northern Hemisphere?

A. Slowing down the jet stream's east-to-west winds and promoting larger north-south meanders in its
flow

B. Slowing down the jet stream's west-to-east winds and promoting larger north-south meanders in its
flow

C. Speeding up the jet stream's east-to-west winds and promoting shallower north-south meanders in its
flow

D. Speeding up the jet stream's west-to-east winds and promoting shallower north-south meanders in its
flow

Correct answer: B

Explanation: B is correct. Arctic amplification in the Northern Hemisphere affects the jet stream by
slowing down the jet streams west-to-east winds and causing larger north-south meanders in the flows.

A is incorrect. The jet stream is not moving from east-to-west.

C is incorrect. The jet stream is not moving from east-to-west. Additionally, it incorrectly states that the
winds promote shallower meanders.

D is incorrect. The winds are not promoting shallower meanders, but rather larger meanders.

Module: 1 Foundations of Climate Change: Science and Global Response

Knowledge point: Introduction to Earth science systems: greenhouse effect, global warming, and climate
change

Learning objective: Distinguish between the components of weather, climate, and their
interrelationships.

Reference: Chapter 2: Extreme Weather and Climate Change (pages 17-35) Romm, J. J.

22
10. A sustainability officer at a multinational firm is studying the guiding principles of the EU Sustainable
Finance Taxonomy (the Taxonomy), the NDRC Green Industry Guiding Catalogue (the Industry
Catalogue), and PBC Green Bond Endorsed Project Catalogue (the Project Catalogue). Which of the
following would the officer find to be correct about these green taxonomies?

A. Unlike the other taxonomies, the Project Catalogue does not explicitly define any environmental
objectives but does provide specific purposes for the green bond market such as defining green bonds
and regulating the green development of the green bond market.

B. The Industry Catalogue and the Taxonomy both illustrate the relationship among environmental
objectives to provide clear guidelines on whether a project is recognized as green based on the project’s
overall environmental benefits.

C. Unlike the other taxonomies, the Industry Catalogue focuses on environmental policies by providing
background details and policy frameworks to support the reorientation of capital flows towards
environmentally sustainable activities.

D. The Industry Catalogue and Project Catalogue highlight climate change while the Taxonomy does not,
and their aims are to meet the goals of the Paris agreement.

Correct answer: A

Explanation: A is correct. The Project Catalogue does not explicitly define any environmental objective
(the Industry Catalogue, on the other hand, specifies pollution prevention and control). The Project
Catalogue is set up for the green bond market with specific purposes. Some examples of these purposes
are to define green bonds, reduce the financing for non-green projects in the guise of green bonds,
improving reputation of green bonds, and regulating the development of the green bond market, among
others.

B is incorrect. Unlike the Taxonomy, the Project Catalogue does not illustrate the relationship among
environmental objectives. This may cause disputes on whether a project is recognized as green if the
project involves several conflicting environmental objectives. An example of such a project is sewage
treatment. While previously the project would be deemed green, the consideration of the project’s overall
environmental benefits may not make it necessarily green.

C is incorrect. The Industry Catalogue focuses on pollution prevention and control. The Industry
Catalogue does not describe background details or policy frameworks. The Taxonomy specifies which
economic activities are environmentally sustainable to reorient capital flows towards these activities.

D is incorrect. It is the Taxonomy that highlights climate change (the Industry Catalogue and Project
Catalogue do not). The Taxonomy’s aim is to meet the goals set out by the Paris Agreement, specifically
the target of net-zero emissions by 2050, and the sustainable development goals.

Module: 3 Green and Sustainable Finance: Instruments and Markets

Knowledge point: Existing and emerging global taxonomies

Learning objective: Compare the guiding principles, users, classifications, and screening criteria among
the various green taxonomies.

Reference: Chapter 22: Comparing China’s Green Bond Endorsed Project Catalogue and the
Green Industry Guiding Catalogue with the EU Sustainable Finance Taxonomy (Part 1) (pages 261-
270) Climate Bonds Initiative.

23
11. A utility company purchases electricity from independent power producers and resells it to end
consumers through a transmission and distribution (T&D) system that it owns and controls. The company
reports the emissions from its purchased electricity as part of its GHG accounting and reporting. Which of
the following is correct regarding the company’s operational accounting for emissions from the purchased
electricity that is consumed within the T&D system?

A. Emissions are reported as scope 1 since the company purchased electricity from independent T&D
power generators.

B. Emissions are reported as scope 1 since the company resold the electricity to third party end users.

C. Emissions are reported as scope 2 since the company accounts for activities upstream of its electricity
provider.

D. Emissions are reported as scope 2 since the company owns and controls the T&D operation.

Correct answer: D

Explanation: D is correct. Emissions from the generation of purchased electricity that is consumed during
T&D are reported in scope 2 by the company that owns or controls the T&D operation.

A is incorrect. The emissions generated from consumed purchased electricity should be reported as
scope 2.

B is incorrect. Reselling the electricity to end users does not allocate the emissions to scope 1. For
emissions to be classified as scope 1, they must be direct emissions generated by the company.

C is incorrect. Emissions from activities upstream of a company’s electricity provider (e.g., exploration,
drilling, flaring, transportation) are reported as scope 3.

Module: 2 Policy, Regulations, and Implications

Knowledge point: Greenhouse gas (GHG) emissions accounting and reporting principles

Learning objective: Explain the concept of boundaries in operational GHG accounting (i.e., Scopes 1, 2,
3).

Reference: Chapter 19: Setting Operational Boundaries (pages 221-230) World Business Council for
Sustainable Development and World Resources Institute.

24
12. A policy analyst at a research institute is preparing a high-level overview of the concept of “stranded
assets” and the risks that can lead to stranded assets. In preparing the overview, which of the following
should the analyst consider to be correct?

A. Consumer behavior that pushes for a growth in product certification schemes can cause stranded
assets.

B. Stranded assets can be caused only by factors relating to climate change or the environment.

C. Most of asset stranding is caused by weather-related physical risks that damage property and assets.

D. While climate related asset stranding is expected to have a significant impact on developed countries,
its impact on developing countries is expected to be negligible.

Correct answer: A

Explanation: A is correct. Consumer behavior is an example of an environment-related risk that can

cause asset stranding. Consumer behavior that pushes for more information to be communicated with
consumers on the products being purchased (certification schemes) can cause stranded assets.

B is incorrect. Stranded assets are a regular feature of economic systems and can be caused by a wide
variety of factors such as economic crises, and not just those related to climate change or the
environment.

C is incorrect. Stranded assets can be caused a variety of environment-related risks, including/relating to

transition risk. Physical risks do not cause most of the asset stranding.

D is incorrect. There is significant concern that asset stranding could have negative impacts on
developing countries’ development and there is considerable effort being put into designing approaches
that would ameliorate these negative effects.

Module: 4 Climate Risk Measurement and Management

Knowledge point: Approaches to measuring climate-related risks

Learning objective: Describe the concept and causes of asset stranding.

Reference: Chapter 35: Stranded Assets: A Climate Risk Challenge (pages 419-442) Caldecott, B.,
Harnett, E., Cojoianu, T., Kok, I., and Pfeiffer, A.

25
13. The treasurer of a large manufacturing company is considering “green” financing alternatives for
some large pollution control projects that are planned to launch over the next 18 months. In reviewing the
voluntary Green Bond Principles, which of the following would the treasurer find to be correct?

A. Issuance proceeds cannot be used to refinance an existing bond, regardless of what the proceeds of
the original bond had been used for.

B. Including second party opinions about the issuer’s project evaluation process in communications to
investors is encouraged.

C. To encourage a green investment philosophy throughout the organization, green bond proceeds
should not be segregated into sub-accounts.

D. As performance metrics for green financing and green projects vary widely, disclosing results based on
quantitative performance measures is discouraged.

Correct answer: B

Explanation: B is correct. Using external reviewers to assess the issuer’s process for project evaluation
and selection is encouraged. Disclosing the resulting second party opinions is also encouraged.

A is incorrect. Issuance proceeds can be used to refinance existing debt. If all or a proportion of the
proceeds are or may be used for a refinancing. However, it is recommended that the issuer provide an
estimate of the share of financing vs. refinancing, and where appropriate, also clarify which investments
or project portfolios may be refinanced, and, to the extent relevant, the expected look-back period for
refinanced Green Projects.

C is incorrect. The net proceeds of a green bond, or an amount equal to these net proceeds, should be
credited to a sub-account, moved to a sub-portfolio or otherwise tracked by the issuer in an appropriate
manner.

D is incorrect. The Green Bond Principles (GBP) recommends the use of qualitative and, where feasible,
quantitative performance measures.

Module: 3 Green and Sustainable Finance: Instruments and Markets

Knowledge point: Green bonds, green loans, and other products

Learning objective: Describe the types of green bond external review providers.

Reference: Chapter 26: Green Bond Principles (pages 321-326) ICMA - International Capital Markets
Association.

26
14. Which of the following statements correctly describes most current physical risk assessment
methodologies?

A. The methodologies avoid covering acute hazards of climate change while focusing on chronic hazards.

B. The methodologies avoid covering hazards due to frequency of extreme weather events.

C. The methodologies use a scenario with a pathway illustrating more than 4°C of warming relative to
pre-industrial temperatures.

D. The methodologies use a scenario that covers the entire value chain of the counterparties they
examine in depth.

Correct answer: C

Explanation: C is correct. Physical risk assessment methodologies most commonly include 4°C or higher
scenarios to show, for example, what a lack of coordination with the Paris Accords would cause.

A is incorrect. Physical risk assessment methodologies do fall into the acute and chronic hazard category
thereby making it impossible to not look at both when evaluating physical risks.

B is incorrect. Physical risk assessment methodologies do, in fact, cover extreme weather events as a
part of acute hazards.

D is incorrect. Physical risk assessment methodologies currently do not cover the entire value chain of the
parties they examine in depth.

Module: 5 Climate Scenario Analysis

Knowledge point: Developing and applying scenario analysis

Learning objective: Assess the available methodologies for climate-related scenario analysis, including
scenario design and physical and transition risk assessment.

Reference: Chapter 44: Changing Course (pages 627-655) UNEP Finance Initiative.

27
15. The CRO of a commercial bank is considering how to implement the TCFD’s recommendations
related to forward-looking scenario-based assessments of climate-related risks and opportunities. In
reviewing the TCFD recommendations as well as the results of pilot implementation studies done by other
banks, which of the following should the CRO consider to be correct?

A. It is important to include a borrower’s current insurance coverage as an ongoing mitigant when

evaluating future climate risk exposure.

B. To account for the inherent uncertainty in climate and sector impact models, an average of potential
climate change impacts should be used when assessing sector productivity.

C. For some industry sectors, it is reasonable to assume a negative correlation between revenue and
cost of goods sold in response to extreme events.

D. As it is difficult to retroactively change the terms of residential mortgages after they are issued, altering
loan-to-value ratios for residential mortgage portfolios is generally not considered when assessing climate
change impacts.

Correct answer: C

Explanation: C is correct. Empirical evidence and models of demand surge indicate that cost of goods
sold often rise while revenue falls following extreme events.

A is incorrect. It is very difficult to predict climate-related insurance coverage going forward so it may often
be prudent to exclude it from the analysis.

B is incorrect. The recommendation is that banks assess impacts on their portfolios associated with the
conservative, ‘worst case’ changes (i.e., the largest production losses).

D is incorrect. As climate change is anticipated to impact property values, estimating changes in the loan-
to-value ratios is an important part of modeling the impact of climate change.

Module: 4 Climate Risk Measurement and Management

Knowledge point: Climate transmission channels

Learning objective: Describe how banks can evaluate climate risk in loan portfolios.

Reference: Chapter 33: Navigating a New Climate (pages 393-406) Connell, R., Firth, J., Baglee, A.,
Haworth, A., Steeves, J., Fouvet, C., and Hamaker-Taylor, R.

28
16. An advisor to a government official in the treasury department is preparing a presentation on the basic
aspects of climate change. If included in the presentation, which of the following correctly describes a
major determinant of global mean surface warming, which leads to climate stabilization or climate
destabilization?

A. Cumulative emissions of CO2 and CO2eq gases

B. Cumulative melting of the Greenland and Antarctic ice sheets

C. Increases or decreases in the daily reflectivity of Earth’s surface

D. Increases or decreases in the level of ocean acidification

Correct answer: A

Explanation: A is correct. Cumulative emissions of CO2 or CO2eq are the forerunners/precursors to a

stabilizing or destabilizing climate.

B is incorrect. The cumulative melting of Greenland/Antarctic ice sheets is an effect of surface warming,
rather than something that largely determines global mean surface warming, leading to climate
stabilization or climate destabilization.

C is incorrect. Earth's albedo, while an important component of solar radiation management, is just one
piece of the solar radiation management puzzle and does not largely determine global mean surface
warming, leading to climate stabilization or climate destabilization.

D is incorrect. Ocean acidification, while environmentally detrimental, does not "largely determine global
mean surface warming, leading to climate stabilization or climate destabilization."

Module: 1 Foundations of Climate Change: Science and Global Response

Knowledge point: Introduction to Earth science systems: greenhouse effect, global warming, and climate
change

Learning objective: Describe the relationship between sea-level rise and climate stabilization.

Reference: Chapter 6: Climate Change 2013: The Physical Science Basis. Summary for
Policymakers, Technical Summary and Frequently Asked Questions (pages 77-100) IPCC -
Intergovernmental Panel on Climate Change.

29
17. A sustainability analyst working for an airline is preparing a report on carbon pricing to better
understand the forms of GHG emissions trading systems (ETS), after the news that the countries the
airline operates in are planning to implement an ETS. Which of the following would be correct for the
analyst to include in the report?

A. In a ‘baseline-and-credit’ system, a carbon tax rate is set that is equal to the estimated benefit of
reducing GHG emissions by the social cost of carbon and allows companies to collect credits for reducing
emissions.

B. In a ‘baseline-and-credit’ system, a tax rate on carbon can be phased in over time and adjusted
regularly for the effects of inflation, technological change, and other factors.

C. In a ‘cap-and-trade’ system, an emissions limit is set for each participant and tradable credits are
allocated to emitters whose actual emissions are less than their limit.

D. In a ‘cap-and-trade’ system, an aggregate emissions limit is set and tradable allowances are
distributed to regulated emitters approximately equal to the limit.

Correct answer: D

Explanation: D is correct. Under this form of ETS, the ‘cap-and-trade’ system, a government-established
limit or cap is imposed on aggregate GHG emissions. The limit distributes tradable allowances (usually 1
tCO2e each) that are approximately equal to the cap.

A is incorrect. This is an example of another instrument of carbon pricing implementation: carbon tax.
One way that a carbon tax rate is set so that the tax rate is equal to the estimated benefit of reducing
GHG emissions by 1 tonne CO 2 (the social cost of carbon).

B is incorrect. This is an example of how a carbon tax rate can be phased in and adjusted with a carbon
tax, not an ETS.

C is incorrect. This is an example of another form of ETS, the ‘baseline-and-credit’ system. Under this
system, emissions limits are specified for each participant. Participants are allocated tradable credits if
their actual emissions are less than their limit. Emitters that exceed their limit can purchase credits to
cover the excess emissions from other participants.

Module: 2 Policy, Regulations, and Implications

Knowledge point: Carbon pricing: taxes, trading, credits, and leakage

Learning objective: Compare the two types of emission trading systems.

Reference: Chapter 20: Carbon Taxes and Greenhouse Gas Emissions Trading Systems: What
Have We Learned? (pages 231-242) Haites, E.

30
18. An equity portfolio analyst has been asked to calculate the portfolio carbon intensity of a two-asset
portfolio with the following characteristics:

Current Value of Company Company Company

Investment Market Capitalization Revenue GHG Emissions
Asset (USD) (USD) (USD millions) (tCO2e)
1 5,000,000 200,000,000 150 8,000
2 20,000,000 400,000,000 50 2,000

Which of the following is closest to the correct portfolio carbon intensity in tCO2e/USD million?

A. 48

B. 50

C. 93

D. 300

Correct answer: A

Explanation: In formula for:

𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒗𝒂𝒍𝒖𝒆 𝒐𝒇 𝒊𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕𝒊
∑𝑵
𝒊=𝟏( 𝒙 𝒄𝒐𝒎𝒑𝒂𝒏𝒚′𝒔𝑮𝑯𝑮 𝒆𝒎𝒊𝒔𝒔𝒊𝒐𝒏𝒔 𝒊 )
𝒄𝒐𝒎𝒑𝒂𝒏𝒚′ 𝒔𝒎𝒂𝒓𝒌𝒆𝒕 𝒄𝒂𝒑𝒊𝒕𝒂𝒍𝒊𝒛𝒂𝒕𝒊𝒐𝒏𝒊
Carbon Intensity for an n-asset portfolio = 𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒗𝒂𝒍𝒖𝒆 𝒐𝒇 𝒊𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕𝒊
∑𝑵 ′
𝒊=𝟏(𝒄𝒐𝒎𝒑𝒂𝒏𝒚′ 𝒔𝒎𝒂𝒓𝒌𝒆𝒕 𝒄𝒂𝒑𝒊𝒕𝒂𝒍𝒊𝒛𝒂𝒕𝒊𝒐𝒏 𝒙 𝒄𝒐𝒎𝒑𝒂𝒏𝒚 𝒔 𝒓𝒆𝒗𝒆𝒏𝒖𝒆 𝒊𝒏 𝑼𝑺𝑫 𝒎𝒊𝒍𝒍𝒊𝒐𝒏𝒊 )
𝒊

In Table form:
A B C D E F G

Current Company Company Company

Value of Market Revenue GHG
Investment Capitalization (USD Emissions A/B x A/B x
Asset (USD) (USD) millions) (tCO2e) D C
1 5,000,000 200,000,000 150 8,000 200 3.75
2 20,000,000 400,000,000 50 2,000 100 2.50 E/F
Sum: 300 6.25 48.00

Module: 4 Climate Risk Measurement and Management

Knowledge point: Climate-related metrics and tools

Learning objective: Calculate the three common climate-related risk metrics used to measure either a
portfolio’s carbon impact or carbon exposure.

Reference: Chapter 40: Measuring Climate-Related Risks in Investment Portfolios (pages 515-530)
Swiss Sustainable Finance.

31
19. Which of the following circumstances would be difficult to depict or reproduce within an integrated
assessment model?

A. A slow change in energy consumption

B. A rapid change in energy consumption

C. Scaling up existing and known technology processes

D. System transformation pathways for 1.5℃ compatible scenarios

Correct answer: B

Explanation: B is correct. A rapid change in energy consumption would be unexpected and difficult to
model within an IAM.

A is incorrect. A slow change in energy consumption is what IAMs are predicted upon.

C is incorrect. Scaling up known technologies is something that IAMs are accustomed to performing.

D is incorrect. IAMs are now able to trace out energy system transformation pathways that lead to 1.5℃-
compatible scenarios.

Module: 1 Foundations of Climate Change: Science and Global Response

Knowledge point: Integrated Assessment Models (IAMs)

Learning objective: Describe the uses and limitations of IAMs.

Reference: Chapter 7: Integrated Assessment Models: What Are They and How Do They Arrive at
Their Conclusions? (pages 101-108) Hare, B., Brecha, R., and Schaeffer, M.

32
20. The NGFS has six recommendations for central banks and supervisors to address climate-related
risks in the financial system. Which of the following is a correct characteristic of climate change that the
NGFS considers?

A. There is currently no mature technology sector capable of reversing GHG emissions and their
corresponding impact on Earth.

B. There is limited confidence that a combination of physical and transition risks will manifest in the future.

C. There is a growing consensus that climate-related risks are fully reflected in asset valuations.

D. Current macroeconomic models can accurately estimate the financial impacts of climate change.

Correct answer: A

Explanation: A is correct. There is currently no mature technology to reverse the process of GHG
emissions concentration in the atmosphere.

B is incorrect. In terms of the foreseeable future, while the exact outcomes, time horizon, and future
pathway are uncertain, there is a high degree of certainty that some combination of physical and
transition risks will materialize in the future.

C is incorrect. The NGFS recognizes with a high degree of certainty that climate-related financial risks are
not fully reflected in asset valuations. It is difficult to accurately predict the financial impact of climate
change, so there is a need for global collective action involving organizations and financial institutions.

D is incorrect. Today’s macroeconomic models may not be able to accurately predict the economic and
financial impact of climate change.

Module: 2 Policy, Regulations, and Implications

Knowledge point: Greening the Financial System best practices

Learning objective: Explain how the NGFS recommendations can guide the financial sector in achieving
the objectives of the Paris Agreement.

Reference: Chapter 15: A Call for Action (pages 187-192) NGFS.

33
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