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Exam SCR topic 1 question 32 discussion

Actual exam question from GARP's SCR
Question #: 32
Topic #: 1
[All SCR Questions]

The board of directors of a growing asset management firm recommends the firm expand its ERM framework to incorporate climate risks. In response, the risk team references the COSO ERM framework for applying ESG-related risks to develop and propose a strategy to implement climate risk into the various ERM components.
How will the risk team modify the existing strategy component of the company’s ERM framework?

  • A. Gather and use scores and physical and transition risk exposure data to conduct various analyses to determine if excess risk would exist in an unfavorable climate scenario.
  • B. Evaluate the full business context on climate risk and understand how climate change affects the inputs, business activities, and outputs.
  • C. Factor in climate risk impacts when reassessing risks after considerable business changes.
  • D. Rank climate risks by likelihood of occurrence and severity to examine resulting outcomes and how the firm can mitigate these risks.
Show Suggested Answer Hide Answer
Suggested Answer: D 🗳️

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goodforme
Highly Voted 1 year ago
Selected Answer: B
Strategy and Setting Objectives, Goals, and Targets : An impor-tant prerequisite for strategic decisions is strategic landscape evaluation; this is especially the case in regard to climate issues. Understanding the full business context on climate risk requires understanding the external environment and megatrends, such as the expected physical, societal, and mac-roeconomic impacts of climate change.
upvoted 11 times
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omi2di
Most Recent 5 months, 2 weeks ago
Selected Answer: B
pg. 136 6.6.2 Strategy and Setting OBjectives, Goals anf Targets
upvoted 2 times
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Gs2410
5 months, 3 weeks ago
Selected Answer: D
without doubt the answer is D. All the Climate Risks may not affect company in same way and it all depends on adaptability and exposure. therefore ranking the risks is the first step on the basis of severity.
upvoted 1 times
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sbrudersohn
11 months, 2 weeks ago
Selected Answer: D
I agree with gooforme that answer B seems to be correct. However, I believe that answer D is also correct: (6.6.3) Risk prioritization is especially important in an ERM context, as any large enterprise will be exposed to a multitude of risks, and it is important to rank these in order of importance. Ranking methods include ranking by likelihood of occurrence, adaptability and complexity, or severity. One way of ranking by severity is to examine what outcomes the risks affect, where risks affecting the fundamentals of business—profits, revenues, and asset values—are ranked as more severe than risks that only affect more ancillary out-comes such as employee morale or land use. Another way of prioritizing risks is to filter by the risks that the company can actually control.
upvoted 1 times
sbrudersohn
11 months, 1 week ago
I would like to retract, since risk prioritization is part of the Performance component/area of the COSO ERM Framework. I fully agree with the choice of B.
upvoted 2 times
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