Exam SCR topic 1 question 24 discussion

Actual exam question from GARP's SCR

Question #: 24
Topic #: 1

The CRO at a commercial bank in China examines the negative impact of climate-related physical risk on clothing manufacturer cash flows that subsequently lead to higher credit risk.
The CRO observes which event leading to increased credit risk from climate physical risk?

A. Decrease in production capacity due to higher labor absenteeism
B. Disruptions in the raw material supply due to climate adaptation
C. Rising costs of outdated manufacturing equipment write-offs
D. Higher costs of adaptation to stricter new low-carbon standards

Show Suggested Answer

Suggested Answer: B 🗳️

by SCRnow at April 15, 2023, 8:26 p.m.

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Anil_SUPER_STAR

8 months, 1 week ago

Correct Answer is D (abrupt transition) - SCR Guide states One important transmission channel from climate to credit risk runs through operational risk. A company whose factories, warehouses, or supply chains are particularly vulnerable to extreme weather impacts (physical risk), or indeed to abrupt policy changes (abrupt transition risk), will have greater business interruption, resulting in a loss of revenues and profits.

upvoted 1 times

kavvv

7 months, 4 weeks ago

the question is asking about physical risk not transition risk. D is obviously referring to transition risk which is immediately incorrect

upvoted 2 times

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SCRnow

1 year, 1 month ago

Answer B is wrongly phrased. Disruption "due to climate adaptation" is not a physical risk. More of a transition risk (efforts to reduce C02, self induced). Supply chain disruptions due to Chronic or acute climate events (...) would be physical risks.

upvoted 1 times

CecileC

1 year, 1 month ago

Adaptation is all physical risk, not transition risk.

upvoted 3 times

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