Exam #4 (Enterprise-201) Flashcards
What are
Risk Management Options?
The four Ts: Avoid the risk: Terminate; mitigate it: Treat; Transfer it; accept it: Tolerate.
What is Climate Risk?
Risk (in terms of probability of impact) that results from two fundamental types of climate impacts: physical and transition-related.
Physical impacts from climate change might include damage to or loss of facilities and disruptions of supply chains. Transition impacts from climate change can include societal, governmental, and legislative changes to address climate change mitigation and adaptation.
The extent of risk, including the consequences of physical impacts, changes over time given the dynamic relationship of risk components in the risk target (e.g., hazard, exposure, sensitivity, and vulnerability of an asset) (see Climate-201).
What is the
Task Force on Climate-Related Financial Disclosure (TCFD)?
An international, multi-sector task force established by the Financial Stability Board in 2015 to develop a set of voluntary, consistent disclosure recommendations for providing information to investors, lenders, and insurance underwriters about an entity’s climate-related financial risks.
TCFD distinguishes climate risk from other types of business risk owing to: Degree of uncertainty about how impacts might affect the business, difficulty in determining when some impacts become sufficiently material to warrant disclosure, decision-usefulness of information about climate risks that involves subjective judgment, and diversity of risk targets the reporting entities control (e.g., supply chains or changing markets).
What is Materiality?
Applied to corporate information, the concept that there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote or make an investment decision.
This is the criterion adopted by the U.S. SEC in 2010 for guidance of corporate climate disclosures. It is obviously a subjective consideration, especially where it intersects with climate change. Its importance likely accounts for delay of new SEC climate guidance into 2024.
What is
Enterprise Risk Management (ERM)?
The culture, capabilities, and practices, integrated with strategy and execution, that entities rely on to manage risk in creating, preserving, and realizing value.
Using ERM, entities can address climate risk within the suite of other risks they face, including environmental, social, and governance (ESG) risk.
What is the Committee of Sponsoring Organizations of the Treadway Commission (COSO)?
A joint initiative of five private sector sponsoring organizations providing thought leadership through the development of frameworks and guidance on ERM, internal control, and fraud deterrence.
The National Commission was sponsored jointly by five major professional associations headquartered in the United States: the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), Financial Executives International (FEI), the Institute of Internal Auditors (IIA), and the National Association of Accountants, now known as the Institute of Management Accountants (IMA).
What is Environmental, Social, and Governance (ESG) Risk?
ESG risk includes the consideration of nonfinancial impacts arising from the environment and sustainability, reputation or brand, legal, technological, product or service quality, labor, ethical conduct, compliance, and strategic considerations.
The goal of ERM is to manage organizational risk to reduce losses (from realized threats) and exploit opportunities to enhance revenue and create other organizational benefits.
What is Risk Appetite?
The amount of risk that an organization is willing to accept to achieve its objectives and what risk requires further action to avoid, mitigate, or transfer.
Risk appetite can be thought of as a broad view of how the organization relates to risk (e.g., an organization may value a culture of continuous innovation and, consequently, may accept more risk to achieve customer growth).
What is Risk Tolerance?
The acceptable deviation from the level set by the risk appetite and business objectives.
Often expressed quantitatively, it refers to decisions regarding specific projects (e.g., requiring projects to be completed within estimated timeframes, but tolerating overruns of up to 25% under certain circumstances).
