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GARP SCR > Climate and Risk Assessment > Flashcards

Climate and Risk Assessment Flashcards

1
Q

What is the definition of climate risk measurement?

A

Quantifying the impacts of climate change

  • Uses different methodologies to identify material climate-risk drivers and their transmission channels
  • map and measure climate-related exposures
  • translate these risks into quantifiable financial risk metrics
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2
Q

What is the definition of a climate risk assessment?

A

Understanding the nature of the impacts and how they might impact different systems and sectors

  • involves looking at potential hazards through climate-related trends, forecasts, and projections
  • Best undertaken across a wide sample (eg: whole sectors) because of the cascading effect that direct impacts can have
  • Climate change determines hazards but vulnerability and exposure is dependent on socioeconomic factors
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3
Q

True or false

Insurance regulators have been slow in integrating climate risks into their supervisory and regulatory practices.

A

False

There is a growing trend of insurance regulators enhancing their regulator insturments to account for the risks more effectively.

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4
Q

True or false

Insurers are urged to include cliamte risks in their own risk and solvency evaluations, using methods such as VaR and climate models

A

False

Although insurers are being urged to include climate risks in their own risk and solvency evaluations, methods such as stress testing and scenario analysis are employed to increase the comprehension of climate risks exposures and offer potential loss projections

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5
Q

Give 3 examples

What influences the climate risk regulation landscape?

A
  1. National efforts to develop principles and tools
  2. International efforts principles and tools
  3. International organisations such as UNEP FI

  • UNEP FI developed a comprehensive overview of more than 40 climate risk assessment methodologies
  • It shows the changing regulatory landscape and potential developments, as well as key guidelines and methodological tools
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6
Q

Which of these are opportunities that companies can have if they apply climate risk assessments?
1. Open up market opportunities from new financial products
2. Reduce losses from climate-related events
3. Enhance brand reputation amongst competitors
4. Access to capital
5. Obtain subsidies and incentives for green finance, technology etc
6. All of the above

A

(6) All of the above

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7
Q

Which global protocol has been instrumental in developing common scenarios to provide a foundation for analysis across many institutuions to aid in consistency and comparability of results?

A

NGFS

Considers vrious factors eg: relevance to the local context, severity of the scenario, time horizon, assumptions of socioeconomic context

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8
Q

Which of these recommendations has the NGFS encouraged central banks and supervisors to do?
1. Implement firm-wide strategy to enhance technical assistance and knowledge sharing
2. Integrate climate factors into financial stability monitoring and supervision
3. Assess climate-related issues and determine its response to those issues
4. All of the above

A

(2) Integrate climate factors into finanical stability monitoring and supervision

This includes:
* closing climate-related data gaps
* strengthening climate-related financial disclosures
* incorporating the reporting of climate risks into supervisory process
* enhance the capacity to conduct climate risk analyses

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9
Q

What does the ISSB do?
1. Sets out baseline scenarios for scneario analysis
2. Advance scientific knowledge about climate change caused by human activities
3. Provide a global baseline of sustainability disclosures to inform further economic and investment decisions
4. Develop sustainability accounting standards that are relevant to the investor decision-making process

A

(3) Provide a global baseline of sustainability disclosures to inform further economic and investment decisions

The ISSB standards are particularly relevant for companies that undertake climate risk assessment. They require entities to assess their climate resilience suing climate-related scenario analysis. They are designed to apply globally and aim to create a common language for disclosure

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10
Q

What’s the difference between IFRS S1 and IFRS S2?
1. S1 refers to Climate-related disclosures and S2 refers to General Requirements
2. S1 refers to General Requirements and S2 refers to Climate-related disclosures
3. S1 refers to public institutions and S2 refers to private institutions
4. S1 refers to General Requirements and S2 refers to Nature-related disclosures

A

(2) S1 refers to General Requirements and S2 refers to Climate-related disclosures

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11
Q

Give 3 examples

What are the differences between TCFD and NGFS?

A
  1. TCFD gives voluntary guidelines for climate-related financial disclosures
  2. NDFS is comprised of central banks and financial supervisors
  3. NDFS focuses on integrating climate and environmental risk management into the financial sector

NGFS uses scenario analysis to integrate climate and environmental risk management into the financial sector

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12
Q

True or false

Both the ISSB and TCFD look to improve the consistency of sustainability information disclosure. However, the ISSB has more specific standards and goes beyond the TCFD recommendations

A

True

The TCFD’s recommendations are broader. The ISSB also requires entities to use scenario analysis vs. the TCFD, which merely recommends disclosure. In fact, the ISSB has consolidated the TCFD recommendations into its standards and there is no need for entities to apply for both

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13
Q

True or false

ISO 14091 from the International Organisation for Standardisation that specifies requiremetns and guidance on adaptation planning and local governments and communities

A

False

It provides guidelines for assessing the risks related to the potential impacts of climate change

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14
Q

What is the purpose of the ISO/TS 14092?
1. To provide guidelines for assessing the risks related to the potential impacts of climate change
2. To provide requirements and guidance on adaptation planning of local governments and communities
3. Helping parties identify misalignment and to create an adaptation plan for hthem
4. All of the above

A

(2) To provide requirements and guidance on adaptation planning of local governments and communities

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15
Q

True or false

UNEP FI is an initiative that informs FIs on the structure, coverage, and methodologies of commonly used tools.

A

True

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16
Q

Give 5

What steps does the TCFD recommend when creating a scenario analysis?

  1. Integration 2. Materiality 3. Range 4. Impacts 5. Responses
A
  1. Integrating scenario analysis into strategic planning and/or ERM processes
  2. Assessing materiality of climate-related risks
  3. Identifying and defining the range of scenarios
  4. Evaluating business impacts
  5. Identifying potential responses
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17
Q

What is the ISSB’s stance on using scenario analysis?

A

ISSB mandates the usage of climate-related scenario analysis and to identify climate-related risks and opportunities

Entities are advised to align their scenario into the most recent international climate change agreement. The ISSB also acknowledges that entities can use other scenarios, as provided by the IEA and IPCC

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18
Q

Give 3 examples

In what ways are ISSB and TCFD differenet in their recommendations on scenario analysis?

A
  1. Specificity and detail
  2. Implementation and compliance
  3. Support and guidance

  1. Specificity and detail - ISSB is more detailed compared to the TCFD. IFRS S2 also requires companies to consider industry-based disclosure topcis and goes beyond disclosures stated in the TCFD
  2. Implementation and compliance - ISSB are mandatory for compliance and are more prescriptive than the TCFD. ISSB’s standards require adherence to methodologies and disclosures
  3. Support and guidance - Both TCFDand ISSBoffer guidance and support materials when conducting a scenario analysis. However, the ISSB also provides practical support to preparers
19
Q

True or false

Stress tests are assessments led by regulators to evaluate how well financial institutions can cope with financial and economic shocks

A

True

They differ from scenario analysis as stress tests are more of a “worst-case” scenario compared to scenario analysis, which are more potential future changes that could have an impact. Scenario analysis can use either positive or negative assumptions

20
Q

What are some of the challenges that the HKMA has recognised in conducting a climate-focused scenario analysis?
1. Insufficient data, difficulty in modelling, and measuing the risks
2. The adoption of long time-horizons, data availability and reliability, uncertainty of future pathways of key reference variables, uncertainty of transition risks
3. Internal variability uncertainty, model uncertainty for predictions at all timescales, scenario uncertainty for climate change projections
4. Accurate representation of uncertainty, modelling loss amplification, extracting data from data loss, understanding and predicting interdecal and decal variability

A

(1) Insufficient data, difficulty in modelling, and measuring the risks

  1. Answer
  2. These are some of the challenges of stress testing
  3. These are some of the challenges of climate modelling
  4. These are some of the challenges of catastrophe modelling
21
Q

Which of these recommendations are NOT based on the NGFS recommendations for physical risk assessment?
1. Define needs and objectives
2. Identify available data and resources
3. Define scope and approach
4. Aggregate company specific data
5. Generate climate scenarios
6. Estimate the impacts
7. Present and interpret the results

A

(4) Aggregate company specific data

These climate scenarios should explore a range of different reference scenarios and can also develop their own scenarios if they need a more specific one. It is recommended that at least 2 scenarios are made and they should identify climate-related macroeconomic and financial risks that considers geographic distribution of hazards and exposures

22
Q

Give 3

What are the steps required in a transition climate risk assessment according to TCFD?

A
  1. Discover and prepare
  2. Assess risks
  3. Standardise approach for specific sectors

  1. Discover and prepare
    * identifying a person who is responsible for climate risk assessment within the organisation
    * Conduct a gap analysis and benchmark against industry best practices
    * What are the stakeholder requests for climate report?
  2. Assess risks
    * GHG inventory
    * identify historical extreme weather events and their financial impacts
    * scnenario analysis on transition risks
    * How relevant and important is this ris to the organisation’s fiscal position and strategy?
    * goals, metrics, targets
    * Develop a transition and adaptation plan that describes the actions the organisation is taking to achieve the goals and minimise the risks
23
Q

What does nature risk mean?

A

The loss of natural assets

24
Q

Give 2

What aspects does the nature risk assessment focus on?

A
  1. Business dependencies on nature
  2. Impacts on nature

The assessments should include information on their reliance on various ecosystem services and the resilience risks of the ecosystems that provide these services

25
Q

True or false

Nature-related risks encompass a broad range of potential threats and impacts associated with the degradation of natural ecosystems, biodiversity loss, and other environmental changes.

A

True

Nature risk is different from climate risk, but they are closely related to each other. Some actions meant to tackle climate change might end up having an effect on nature. Therefore, it is important to consider the two of these risks in risk management strategies

26
Q

True or false

Nature and climate risks are dependent of each other

A

False

Cliamte change can negatively affect ecosystems and contribute to nature risk. However, nature risk can also happen independently of climate change (ie: due to human activities). Importantly, cliamte risk and nature risk can amplify each other (eg: less trees reduces the ability to sequester CO2 whilst the climate change can accelerate biodiversity loss, resulting in nature risks

27
Q

What is a challenge in addressing nature risks?

A

How to quantify?

There is no single unit of measurement, which makes it difficult to analyse compared to GHG emissions

28
Q

Which of these bodies have created a framework for biodiversity-related corporate reporting?
1. Biodiversity Applicaiton Guidance by Climate Disclosure Standards
2. Partnership for Biodiversity Guidance and Disclosure Standards
3. Global Biodiversity Framework
4. Science-based Nature Targets
5. 1,5
6. 1,3
7. 2,3
8. 2,4
9. 2,5

A

(6) 1, 3

Biodiversity Application Guidance by Climate Disclosure Standards Board - For investors to receive biodiversity-related inforamtion needed for effective capital allocation

Global Biodiversity Framework - Framework of recommendations of legal and policy measures that could be taken to encourage companies to monitor, assess, and disclose their risks and dependencies

29
Q

True or false

The TNFD is an initiative that aims to provide a framework for organisations to address environmental risks and opportunities, especially those concerning the loss of biodiversity and degradation of ecosystems

A

True

The ultimate goal is to support the shift in global financial flows from activities that cause harm to nature.

30
Q

Which of these is NOT a TNFD disclosure framework pillar?
1. The Governance pillar
2. The Strategy pillar
3. The Stakeholder pillar
4. The Metrics and Targets pillar

A

(3) The Stakeholder pillar

The other pillar is the Risk annd Impact Management pillar

31
Q

What does LEAP framework stand for?

A

L - Locate
E - Evaluate
A - Assess
P -Prepare

32
Q

What is the LEAP methodology used for?

A

To help identify and evaluate nature-related challenges

The LEAP methodology can be used by all organisations of any size and any region. Its goal is to help with more thorough examination to prepare disclosure statements that align with the TNFD

33
Q

What are the key concepts in LEAP?

A
  1. Drivers
  2. Dependencies & Impacts
  3. Threshold
  4. Biodiversity Indicators
  5. Baselines, reference conditions

The threshold refers to the point of which the environmental condition results in significant or irreversible changes

The biodiversity indicators refers to a set of metrics to evaluate the biodiversity health and the impact of human activities on ecosystems

34
Q

True or false

Regulatory concern over nature risks is a primary catalyst for corporate action and reporting on biodiversity

A

False

It’s investor concern

35
Q

How much is the worldwide financing for conserving biodiversity estimated to be?
1. $40-68Bn
2. $78-91Bn
3. $86-$103Bn
4. $136 - $162Bn

A

(2) $78-91Bn

This includes both public and private funds

36
Q

What is the financial shoftfall for activities related to the Convention on Biological Diversity?
1. $599Bn - $824Bn every year
2. $671Bn-$945Bn every year
3. $739Bn - $1.24Tr every year
4. $856Bn- $1.47Tr every year

A

(1) $599Bn-$824Bn every year

To bridge the gap, it is necessary to
boost funding
Cut back on detrimental investments
Enhance the efficiency of conservation efforts

37
Q

Give 6 examples

What are challenges in financing biodiversity and ecosystem projects?

Data is complex if there are no standards and there are gaps in the information

A
  1. Data availability and standardisation
  2. Complexity of biodiversity loss
  3. Lack of standard tools and methods
  4. Funding gaps
  5. Insufficient information on biodiversity impact
  6. Reliance on public and philanthropy funding
38
Q

True or false

Climate change can have a drastic impact on water resources and water-dependent sectors. These impacts can be separated into the following:
1. Water supply/ quantity
2. Water quality
3. Energy production
4. Agriculture

A

True

1.Water supply/ quantity –> climate change will increase the demand whilst shrinking the supply. Increased likelihoood of persistent droughts to occur
2.Water quality –> Increased rainfal = more sediment runoff into water bodies :. increased degradation of water quality > affects human health and ecosystem health
3.Energy production ** –> hydroelectric and thermal power plants will be seriously affected
4.Agriculture** –> Will affect food availability and reduce access to food due to affected crop yield from changing weather patterns

39
Q

What is a water risk assessment?

A

A tool used to identify, manage and mitigate water-related impacts from issues

Issues include:
* local water stress
* pollution
* climate change

40
Q

Give 2

What are the two components in a water risk assessment?

A
  1. Location/ physical risk
  2. Regulatory risk

WRAs can also consider reputational risk. It is important that WRAs are conducted at both basin and operational level. Basin level assessments reers to the broad overview of water risks in a particular region, whilst operational assessments looks at the company’s dependence and the impact of its activities on local water resources

41
Q

What is the first action that companies should do when doing when considering the water-related natural hazards?
1. Identify the physical risks asscoiated with water in their operational and regional contexts
2. Track the source of water and its discharges at the site level
3. Evaluating the natural replenshiment rates of water sources
4. Consider the companies’ dependency on water services

A

(1) Identify the physical risks associated with water in their operational and regional contexts

  1. Is a part of of a site water-balance analysis, which is for water quality and quantity availability
  2. Is part of the assessment to understand water supply replenishment and withdrawal rates
42
Q
A
43
Q

Which of these bodies created guidelines for water-related risk assesment?
1. WRI
2. OECD
3. UNU-INWEH
4. All of the above

A

(4) All of the above

44
Q

True or false

Traditional financing for water system improvements and maintenance was mostly handled by the governemtns through cash financing

A

False

It was mostly handled by the utilities

GARP SCR (10 decks)

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