Chapter 6 Flashcards
What company-level R include?
Operational
Credit
Liquidity
Underwriting.
Systemic risk def
Risk of a collapse of an entire system (rather than failure of individual parts)
Corporate GHG emissions def
Combo of 3 scopes of emissions, defined by GHG protocol
3 scopes of GHG emissions
Scope 1: direct emissions
Scope 2: Emissions from energy inputted
Scope 3: indirect emissions from supply chains and products
Emission trajectory
Projection of GHG emissions levels, based on current and proposed practices and policies
Physical risk
R arising from physical Climate and weather impacts that result from CC
Transition R def
R arising from economic transformation to reduce GHG and reach net zero emissions
LGD def
Proportion of the Total Exposure at Default, that was not recovered after liquidating the collateral and all other measures.
(e.g. owe 1k, at default still owe 400 EUR). 100 Eur is recovered. EAD = 400, LGD = 300 / 400 = 0.75
Liquidity risk & def of liquidity
R that institution can’t meet its obligations bc of losing access to liquidity. Liquidity - ability to quickly convert assets into cash
Minsky moment def
Sudden major collapse of asset prices (repricing of assets), typically after a period of excessive borrowing and risk taking
How does climate risk transfer to market risk?
Dislocation Effects
Asset stranding
3 Scopes of GHG emissions
1 - Emissions resulting directly from company’s operations
2 - Upstream emissions from purchased electricity, heating, cooling
3 - Other upstream emissions from supply chains + downstream emissions from use / disposal of products / services sold by the company
Corporate carbon footprint
Carbon emissions of a firm’s scope 1, 2, 3
What is carbon intensity?
Metrics for portfolio-level analysis of transition risks. Measured in Co2e / revenue[USD mil.]
wtf they mean by “asset”?
Buildings, factories, mines, power plants, wind farm, etc. - a facility owned by the company
Climate Var def
Quantitative estimate of expected fin losses / gains from climate risks and opportunities
3 components of tracking performance for ESG & climate risks
Risk identification
Risk assessment & prioritization
Implementation of R responses
5 ways to respond to risk
Accept (no taking action)
Avoid (remove R completely)
Pursuit (convert R to opportunitiy)
Reduce
Share (R mitigation via collab with suppliers, regulators, associations, competing firms, etc.)
