ESG Environmental Sustainability & Risk Management 3 — Questions and Answers
Question 1: The Science Based Targets initiative (SBTi) requires a company's near-term Scope 1 and 2 targets to be consistent with limiting global warming to:
- 2°C above pre-industrial levels
- 1.5°C above pre-industrial levels (Correct answer)
- Net-zero by 2050 with no interim limit
- A 30% reduction from 2010 baseline by 2030
Correct answer: 1.5°C above pre-industrial levels
SBTi's updated criteria require near-term targets to align with a 1.5°C pathway, consistent with the ambition of the Paris Agreement.
Question 2: In a lifecycle assessment (LCA), the 'functional unit' is defined to:
- Set the system boundary between upstream and downstream processes
- Provide a quantified reference for comparing products with the same function (Correct answer)
- Identify hotspots of highest environmental impact within the supply chain
- Allocate co-product emissions between joint production processes
Correct answer: Provide a quantified reference for comparing products with the same function
The functional unit quantifies the primary function delivered by the product system, enabling a like-for-like comparison between alternative systems.
Question 3: Which biodiversity accounting standard assigns monetary or quantitative values to ecosystem services affected by a business operation?
- TNFD Recommendations
- Natural Capital Protocol (Correct answer)
- Kunming-Montreal Global Biodiversity Framework
- IPBES Global Assessment
Correct answer: Natural Capital Protocol
The Natural Capital Protocol provides a standardized framework for businesses to identify, measure, and value their impacts and dependencies on natural capital including ecosystem services.
Question 4: A company's carbon intensity metric is best defined as:
- Total absolute GHG emissions compared to a base year
- GHG emissions per unit of economic or physical output (Correct answer)
- The ratio of Scope 1 to total Scope 1+2+3 emissions
- Carbon credits purchased relative to total emissions produced
Correct answer: GHG emissions per unit of economic or physical output
Carbon intensity normalizes emissions against a unit of output (e.g., revenue or production volume), enabling performance benchmarking across companies of different sizes.
Question 5: Under the EU Taxonomy Regulation, for an economic activity to qualify as environmentally sustainable it must:
- Achieve carbon neutrality within 10 years of classification
- Substantially contribute to at least one objective and do no significant harm to others (Correct answer)
- Receive a green bond certification from an accredited third party
- Reduce absolute Scope 1 emissions by at least 50% within five years
Correct answer: Substantially contribute to at least one objective and do no significant harm to others
EU Taxonomy criteria require substantial contribution to at least one of six environmental objectives while not significantly harming any other, and meeting minimum social safeguards.
Question 6: Which tool is most appropriate for assessing a company's exposure to chronic physical climate risk over a 30-year time horizon?
- Monte Carlo simulation of short-term commodity price volatility
- Climate scenario analysis using IPCC Representative Concentration Pathways (Correct answer)
- Regulatory compliance audit against current emission standards
- Benchmarking current energy intensity against industry peers
Correct answer: Climate scenario analysis using IPCC Representative Concentration Pathways
Climate scenario analysis using established pathways such as RCP 4.5 or RCP 8.5 is designed to quantify long-term physical risk under different temperature trajectories.
Question 7: An ESG consultant recommends an internal carbon price to a client. The primary strategic purpose of this tool is to:
- Generate revenue for corporate sustainability programs
- Signal to investors that the company is Paris-aligned
- Internalize the cost of carbon into capital allocation and project decisions (Correct answer)
- Offset Scope 3 emissions through internal credit trading
Correct answer: Internalize the cost of carbon into capital allocation and project decisions
An internal carbon price embeds the cost of carbon into business decision-making, incentivizing investments in low-carbon alternatives before regulatory carbon pricing is imposed.
ESG Environmental Sustainability & Risk Management 3
The Science Based Targets initiative (SBTi) requires a company's near-term Scope 1 and 2 targets to be consistent with limiting global warming to: