SCR Climate Scenario Analysis & Stress Testing Flashcards

In the SCR context, a 'double materiality' assessment requires organizations to evaluate which two dimensions?

Answer: How climate risks affect the company financially and how the company impacts the climate

Double materiality considers both financial materiality (climate's effect on the company) and impact materiality (the company's effect on the environment and climate).

Which framework introduced the concept of 'orderly,' 'disorderly,' and 'hot house world' as the three core climate scenario archetypes used in supervisory stress tests?

Answer: Network for Greening the Financial System (NGFS)

NGFS developed three canonical scenario archetypes — orderly, disorderly, and hot house world — now widely adopted in central bank supervisory stress testing.

In SCR climate stress testing, what does 'carbon budget' refer to?

Answer: The total cumulative CO2 emissions allowable to keep warming within a specified temperature target

A carbon budget represents the total amount of CO2 that can be emitted globally while still limiting warming to a specific temperature threshold like 1.5°C or 2°C.

When applying climate scenario analysis to real estate portfolios, which physical risk factor is most relevant for coastal properties in the SCR framework?

Answer: Sea-level rise and increased storm surge frequency

Coastal real estate is primarily exposed to sea-level rise and intensified storm surges, which are chronic and acute physical risks respectively.

For SCR candidates, Scope 3 emissions are important in scenario analysis because they represent:

Answer: Indirect emissions across a company's full value chain, which often exceed Scope 1 and 2 combined

Scope 3 captures all indirect value chain emissions — both upstream and downstream — and typically constitutes the largest share of a company's total carbon footprint.

In the SCR exam context, which body issues the Principles for Responsible Investment (PRI) that guide climate scenario integration in investment portfolios?

Answer: United Nations Environment Programme Finance Initiative (UNEP FI)

The PRI was launched by UNEP FI and the UN Global Compact to encourage investors to incorporate ESG factors, including climate scenario analysis, into investment decisions.