SCR Climate Scenario Analysis & Stress Testing Flashcards

Which organization developed the widely used climate scenario framework that includes RCP (Representative Concentration Pathway) scenarios adopted by the SCR exam?

Answer: Intergovernmental Panel on Climate Change (IPCC)

The IPCC developed the RCP scenarios, which represent different greenhouse gas concentration trajectories used in climate risk analysis.

In a climate stress test, what does a '1.5°C scenario' primarily represent for financial institutions?

Answer: A low-transition-risk pathway aligned with the Paris Agreement's most ambitious target

The 1.5°C scenario represents the most ambitious Paris Agreement target, implying aggressive decarbonization policies and lower physical risks but higher transition risks.

The Network for Greening the Financial System (NGFS) provides climate scenarios primarily used by which entities in the SCR context?

Answer: Central banks and financial supervisors

NGFS scenarios are specifically designed for central banks and financial supervisors to assess climate-related financial stability risks.

In SCR scenario analysis, 'transition risk' under a disorderly transition pathway is characterized by which feature?

Answer: Abrupt and late policy changes leading to stranded assets and market volatility

A disorderly transition involves sudden, belated policy shifts that create abrupt repricing of carbon-intensive assets and significant stranded asset risk.

Which SCR concept describes the potential loss in value of fossil-fuel-related assets due to climate policy or technological change?

Answer: Stranded assets

Stranded assets are those that lose economic value prematurely due to climate-related regulations, market shifts, or technological disruption.

When conducting a climate scenario analysis, the time horizon most commonly associated with physical risk assessment differs from transition risk because physical risks:

Answer: Materialize over longer horizons (decades) while transition risks can emerge within years

Physical risks like sea-level rise unfold over decades, while transition risks from policy changes can crystallize within a few years of regulatory action.