2020
Sustainability
and Climate Risk
(SCR™) Certificate
Practice Questions
garp.org/scr
1
Table of Contents
Introduction to 2020 SCR Practice Questions ............................................................................. 2
2020 SCR Practice Questions – Candidate Answer Sheet ......................................................... 3
2020 SCR Practice Questions – Questions ................................................................................. 4
2020 SCR Practice Questions – Answer Key .............................................................................. 8
2020 SCR Practice Questions – Answers & Explanations .......................................................... 9
1
Updated as of May 1, 2020.
Introduction
The SCR Exam is practice oriented. Its questions are derived from a combination of theory, as
set forth in the core readings, and “real-world” work experience. Candidates are expected to
understand sustainability and climate risk concepts and approaches, as well as the ways in which
they would apply to a candidate’s day-to-day activities. The curriculum covers the essential skills
and knowledge areas necessary for individuals and organizations to succeed in today’s rapidly
changing risk-laden landscape. It constitutes an increasingly referenced and ever-expanding
spectrum of risk-planning standards from which practitioners can learn and understand the
intricate nature of the sustainability and climate risk landscape. As such, the Exam is
comprehensive in nature, testing a candidate on several sought-after SCR standards and
mechanisms.
The 2020 SCR Practice Questions document has been developed to aid candidates in their
preparation for the SCR Exam in September and November 2020. The SCR Exam contains 80
multiple-choice questions. These Practice Questions are based on sample questions that are
suggestive of the questions that will be on the 2020 SCR Exam. The 2020 SCR Practice
Questions document contains 12 multiple-choice questions, distributed as 2 per module. The
questions do not necessarily cover all topics to be tested in the 2020 SCR Exam as any test
samples from the universe of testable possible knowledge points. However, the questions
selected for inclusion in the Practice Questions document were chosen to be broadly reflective of
the material assigned for 2020 as well as to represent the style of question that the SCR Advisory
Committee considers appropriate based on assigned material.
For a complete list of current topics, core readings, and key learning objectives, candidates should
refer to the 2020 SCR Study Guide and Learning Objectives document. Questions for the SCR
Exam are related to and supported by the curriculum readings. These readings were selected by
the SCR Advisory Committee to assist candidates in their review of the subjects covered by the
Exam.
2
2020 SCR Practice Questions — Candidate Answer Sheet
1.
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4.
5.
6.
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11.
12.
3
1. The second most common greenhouse gas (GHG) produced by human activity is methane (CH 4).
Which of the following activities correctly identifies a direct major source of CH 4?
A. Cement production
B. Deforestation and land use
C. Combustion of fuel
D. Livestock meat production
2. The Paris Agreement obligates all parties to perform which of the following?
A. Calculate a per-capita based climate change mitigation policy
B. Establish nationally determined emission reductions
C. Repair the North-South divide over UNFCC interpretation
D. Institute absolute emission reduction targets
3. A multinational company seeks to comply with the Task Force on Climate-Related Financial
Disclosures’ recommendations. The company has described hurricanes and flooding as medium-term
physical climate risks to its global supply chain and has included these climate-related risks in its annual
report. This adherence to a recommended disclosure falls under which thematic area of the TCFD?
A. Governance
B. Strategy
C. Risk management
D. Metrics and targets
4. Company EFG is a logistics enterprise that derives an economic profit from its shipping service.
Consequently, it has been mandated to take ownership for any greenhouse gas (GHG) emissions
generated by its shipping processes. Which GHG scope reporting approach should the company use?
A. Scope 1
B. Scope 2
C. Scope 3
D. Scope 4
4
5. Which of the following guidelines classifies economic activities and projects as sustainable based on
the principles of “substantial contribution” to environmental objectives and “do no significant harm”?
A. Action Plan: Financing Sustainable Growth
B. EU Sustainable Finance Taxonomy
C. NDRC Green Industry Guiding Catalogue
D. PBC Green Bond Endorsed Project Catalogue
6. Which of the following regions saw the largest growth in the issuance of green and sustainability-linked
loans in 2019?
A. Americas
B. Asia-Pacific
C. Europe, the Middle East, and Africa
D. Oceania
7. A junior risk manager at a manufacturing company is preparing a report on the various climate-related
risks the company might face. Which of the following should the manager include as an example of a
physical risk exposure?
A. The company’s investment in new technologies proves to be unsuccessful and costly.
B. The company notices a change in customer behavior and a lower demand for one of its main products.
C. The company faces increased production costs due to changing waste treatment requirements.
D. The company’s production costs increase due to extreme variability in weather patterns.
8. Available strategies for managing carbon asset risk can differ depending on the investment and actors
involved. How could a financial institution that extends loans best manage the carbon asset risk of a new
investment?
A. Conduct stress testing
B. Adjust risk premium
C. Investing with ESG screens
D. Diversification
5
9. A risk manager is assessing the challenges and benefits of conducting climate-related scenario
analysis. Which of the following statements is correct?
A. A benefit of scenario analysis is that it is useful for businesses to conduct micro assessments of issues
that play out over the short to medium term.
B. A benefit of scenario analysis is that in most instances it provides businesses with sector- and activityspecific results.
C. A challenge of scenario analysis is that large companies cannot apply it as part of their risk
management processes and strategic planning.
D. A challenge of scenario analysis is that data tends to be granular and not widely available across
different jurisdictions and geographic locations.
10. A senior risk manager at a bank is proposing a new transition risk assessment methodology that
encompasses three integrated modules. The first module details the role of transition scenarios. Which of
the following best describes how scenarios are used to assess transition risk?
A. Scenarios provide consistent reference points and common parameters for impact assessment across
institutions, geographies, and sectors.
B. Scenarios bridge information gaps using expert judgment and in-house credit risk tools to assess the
changes to default probabilities.
C. Scenarios gather empirical data on corporate exposure to transition risk by using industry expert
opinions and tailored assessments.
D. Scenarios use a systematic and repeatable approach to extrapolate the risk assessed by the other
modules.
11. Climate change can both directly and indirectly impact mental health. Which of the following illustrates
an indirect impact of climate change on mental health?
A. Resource loss related to sea-level rise
B. Homelessness due to wildfire incidents
C. Extreme heat related to an extreme weather event
D. Hurricane-related damage to infrastructure
6
12. Frameworks for assessing the economic impacts of Arctic change give specific attention to the knockon (i.e., secondary effects) of climate change. The economic costs and benefits associated with these
global knock-on effects are most relevant to which of the following areas?
A. Methane release
B. Commodity pricing
C. Infrastructure costs
D. Arctic security
7
2020 SCR Practice Questions — Answer Key
1.
D
2.
B
3.
B
4.
A
5.
B
6.
A
7.
D
8.
B
9.
D
10.
A
11.
A
12.
B
8
1. The second most common greenhouse gas (GHG) produced by human activity is methane (CH 4).
Which of the following activities correctly identifies a direct major source of CH 4?
A. Cement production
B. Deforestation and land use
C. Combustion of fuel
D. Livestock meat production
Correct answer: D
Explanation: D is correct as livestock (especially cows) are major direct source of greenhouse gases
based on the human activity of producing meat.
A is not correct as cement production is a large producer of carbon dioxide but not methane.
B is not correct as deforestation and land use is a direct major source of carbon dioxide but not methane.
C is not correct as fuel combustion is a large producer of nitrous oxide but not methane.
Module: 1 Foundations of Climate Change: Science and Global Response
Knowledge point: Introduction to Earth science systems: greenhouse effect, global warming, and climate
change
Learning objective: Define greenhouse gases and describe their connection to human activity and
energy use.
Reference: Romm, J.J. (2016). Climate Change: What Everyone Needs to Know (1st ed.). New York, NY:
Oxford University Press. Chapter 1: Climate Science Basics
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2. The Paris Agreement obligates all parties to perform which of the following?
A. Calculate a per-capita based climate change mitigation policy
B. Establish nationally determined emission reductions
C. Repair the North-South divide over UNFCC interpretation
D. Institute absolute emission reduction targets
Correct answer: B
Explanation: B is the correct answer as now each country needs a nationally determined emission
reduction to reduce GHG emissions, although differentiation is allowed in the degree of goals based on
economic status, etc.
A is incorrect in that a per-capita based climate change policy is not correct and is not a formal part of the
Paris Accords.
C is incorrect as individual countries themselves are not responsible for repairing the North-South divide
of UNFCC interpretation.
D is not correct as this is just one terminus on the sliding scale that a state could choose to select.
However, it is at the far-end of the scale and is not an obligation.
Module: 1 Foundations of Climate Change: Science and Global Response
Knowledge point: History and evolution of past and present climate accords
Learning objective: Compare climate change policies and goals from pre-Paris Accords to those
implemented in the Paris Agreement.
Reference: Falkner, R. (2016). The Paris Agreement and the new logic of international climate politics.
International Affairs, 92(5), (pages 1107–1125). doi: 10.1111/1468-2346.12708
10
3. A multinational company seeks to comply with the Task Force on Climate-Related Financial
Disclosures’ recommendations. The company has described hurricanes and flooding as medium-term
physical climate risks to its global supply chain and has included these climate-related risks in its annual
report. This adherence to a recommended disclosure falls under which thematic area of the TCFD?
A. Governance
B. Strategy
C. Risk management
D. Metrics and targets
Correct answer: B
Explanation: B is correct. The actual disclosure of climate-related risks falls under the thematic area of
Strategy. Under Strategy, the TCFD provides the following recommended disclosure: “Disclose the actual
and potential impacts of climate-related risks and opportunities on the organization’s businesses,
strategy, and financial planning where such information is material.”
A is incorrect. The thematic area of Governance offers recommendations that focus on the disclosure of
the organization’s governance around climate-related risks and opportunities.
C is incorrect. The thematic area of Risk Management deals with recommended disclosures on how an
organization identifies, assesses, and manages climate-related risks.
D is incorrect. The thematic area of Metrics and Targets offers recommended disclosures on the metrics
and targets used to assess and manage relevant climate-related risks and opportunities where such
information is material.
Module: 2 Policy, Regulations, and Implications
Knowledge point: Climate-related financial disclosures
Learning objective: Identify the four core elements of climate-related financial disclosure and the
recommended types of information that should be disclosed or considered for each.
Reference: TCFD. (2017). Final Report: Recommendations of the Task Force on Climate-related
Financial Disclosures. (pp. 13–23).
11
4. Company EFG is a logistics enterprise that derives an economic profit from its shipping service.
Consequently, it has been mandated to take ownership for any greenhouse gas (GHG) emissions
generated by its shipping processes. Which GHG scope reporting approach should the company use?
A. Scope 1
B. Scope 2
C. Scope 3
D. Scope 4
Correct answer: A
Explanation: A is correct. GHG emissions from sources a company owns or controls fall under Scope 1.
B is incorrect. Scope 2 concerns the emissions from the generation of purchased electricity that a
company consumes either directly or via its controlled equipment or operations.
C is incorrect. Scope 3 emissions are all indirect emissions not included in Scope 2 that occur in the value
chain of the reporting company, including both upstream and downstream emissions.
D is incorrect. There is no Scope 4 approach in the operational boundary accounting of GHGs.
Module: 2 Policy, Regulations, and Implications
Knowledge point: Greenhouse gas (GHG) emissions accounting and reporting principles
Learning objective: Describe the definitional coverage of Scopes 1, 2, and 3, along with their respective
roles in delineating emission sources in GHG accounting.
Reference: World Business Council for Sustainable Development & World Resources Institute. (2004).
The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard. Chapter 4: Setting
Operational Boundaries (pages 24-33)
12
5. Which of the following guidelines classifies economic activities and projects as sustainable based on
the principles of “substantial contribution” to environmental objectives and “do no significant harm”?
A. Action Plan: Financing Sustainable Growth
B. EU Sustainable Finance Taxonomy
C. NDRC Green Industry Guiding Catalogue
D. PBC Green Bond Endorsed Project Catalogue
Correct answer: B
Explanation: B is correct. The technical screening criteria for the 67 economic activities in the EU
Sustainable Finance Taxonomy are set based on two principles: “substantial contribution” and “do no
significant harm.”
A is incorrect. Action Plan: Financing Sustainable Growth is a part of the European Commission’s
strategy to reform its financial system. The plan elaborates the ten key actions to be taken by the
European Commission as well as the timeline. The Action Plan features the establishment of the EU
Sustainable Finance Taxonomy.
C is incorrect. NDRC Green Industry Guiding Catalogue focuses on pollution prevention and control.
D is incorrect. The PBC Green Bond Endorsed Project Catalogue is set up for the green bond market with
specific purposes (e.g., defining green bonds, reducing financing for non-green projects in the guise of
green bonds, and improving reputation of green bonds).
Module: 3 Green and Sustainable Finance: Instruments and Markets
Knowledge point: Existing and emerging global taxonomies
Learning objective: Compare the guiding principles, users, classifications, and screening criteria among
the various green taxonomies.
Reference: Climate Bonds Initiative. (2019). Comparing China's Green Bond Endorsed Project
Catalogue and the Green Industry Guiding Catalogue with the EU Sustainable Finance Taxonomy (Part
1) (pages 1–6).
13
6. Which of the following regions saw the largest growth in the issuance of green and sustainability-linked
loans in 2019?
A. Americas
B. Asia-Pacific
C. Europe, the Middle East, and Africa
D. Oceania
Correct answer: A
Explanation: A is correct. The biggest growth in regional volume has been in the Americas; the first half
of 2019 exhibited a threefold increase in green loan and SLL in the US.
B is incorrect. EMEA is the regional leader in terms of nominal issuance with nearly 70% of global
volume.
C is incorrect. APAC has experienced a modest growth in issuance.
D is incorrect. Oceania doesn’t have significant volume issuance relative to the other regions.
Module: 3 Green and Sustainable Finance: Instruments and Markets
Knowledge point: Green bonds, green loans, and other products
Learning objective: Describe the growth in the green and sustainable loan markets.
Reference: LSTA. (2019). 8 Things You Need To Know About Sustainable Finance (pages 1–2).
14
7. A junior risk manager at a manufacturing company is preparing a report on the various climate-related
risks the company might face. Which of the following should the manager include as an example of a
physical risk exposure?
A. The company’s investment in new technologies proves to be unsuccessful and costly.
B. The company notices a change in customer behavior and a lower demand for one of its main products.
C. The company faces increased production costs due to changing waste treatment requirements.
D. The company’s production costs increase due to extreme variability in weather patterns.
Correct answer: D
Explanation: D is correct. This is an example of a chronic, physical risk.
A is incorrect. Unsuccessful investments in new technologies is an example of technology risk, which falls
under the transition risk category.
B is incorrect. Reduced demand due to changing consumer preferences is an example of market
transition risk.
C is incorrect. Changing output requirements is an example of market transition risk.
Module: 4 Climate Risk Measurement and Management
Knowledge point: Climate transmission channels
Learning objective: Identify and describe the physical and transition climate-related risks.
Reference: Task Force on Climate-Related Financial Disclosures. (2017). Implementing the
Recommendations of the Task Force on Climate-related Financial Disclosures (pp. 4–9, 71–77).
15
8. Available strategies for managing carbon asset risk can differ depending on the investment and actors
involved. How could a financial institution that extends loans best manage the carbon asset risk of a new
investment?
A. Conduct stress testing
B. Adjust risk premium
C. Investing with ESG screens
D. Diversification
Correct answer: B
Explanation: B is the correct answer. For new investments, lenders can adjust the risk premium it seeks
(proper risk pricing) for future financing of physical assets or companies in order to manage the risk.
A is incorrect. Stress testing is part of the risk evaluation process. It is the method of assessing how
certain factors or changes could affect the financial performance of an asset or company.
C is incorrect. Investing with ESG screens is a risk management option for shareholders/equity owners.
They can exclude certain holdings or tilt the portfolio towards lower risk assets.
D is incorrect. Diversification is mainly a risk management option for shareholders. Shareholders can
manage carbon asset risk through diversification: they can assess where risks are concentrated and seek
opportunities to diversify this risk across their portfolio, either within sectors or across sectors. Lenders
can also do diversification, but this is done for managing carbon asset risk in existing loans and not new
investments.
Module: 4 Climate Risk Measurement and Management
Knowledge point: Climate transmission channels
Learning objective: Illustrate the pathways toward managing carbon asset risk along with the roles of
various stakeholders.
Reference: WRI and UNEP-FI Portfolio Carbon Initiative. (2015). Carbon Asset Risk: Discussion
Framework (pages 21–47).
16
9. A risk manager is assessing the challenges and benefits of conducting climate-related scenario
analysis. Which of the following statements is correct?
A. A benefit of scenario analysis is that it is useful for businesses to conduct micro assessments of issues
that play out over the short to medium term.
B. A benefit of scenario analysis is that in most instances it provides businesses with sector- and activityspecific results.
C. A challenge of scenario analysis is that large companies cannot apply it as part of their risk
management processes and strategic planning.
D. A challenge of scenario analysis is that data tends to be granular and not widely available across
different jurisdictions and geographic locations.
Correct answer: D
Explanation: D is the correct answer. Both the availability and granularity of data can be a challenge for
organizations attempting to assess various energy and technology pathways or carbon constraints in
different jurisdictions.
A is incorrect. This is not a benefit of scenario analysis since most scenarios have been developed for
global and macro assessments of potential climate-related impacts; these are useful for assessing issues
with possible outcomes that play out over the medium to long term.
B is incorrect. This is not a benefit of scenario analysis since a majority of transition scenarios do not
provide sector- or activity-specific results in most instances.
C is incorrect. A number of the world’s largest companies and investors are already applying climaterelated scenario analysis as part of their strategic planning and risk management processes, so this
would be a benefit.
Module: 5 Climate Scenario Analysis
Knowledge point: Developing and applying scenario analysis
Learning objective: Explain how to develop and apply scenario analysis, including the considerations for
incorporating climate change into scenario analysis, analytical choices, tools and data, as well as the
associated challenges and benefits.
Reference: TCFD. (2017). Technical Supplement: The Use of Scenario Analysis in Disclosure of ClimateRelated Risks and Opportunities (pages 1–29).
17
10. A senior risk manager at a bank is proposing a new transition risk assessment methodology that
encompasses three integrated modules. The first module details the role of transition scenarios. Which of
the following best describes how scenarios are used to assess transition risk?
A. Scenarios provide consistent reference points and common parameters for impact assessment across
institutions, geographies, and sectors.
B. Scenarios bridge information gaps using expert judgment and in-house credit risk tools to assess the
changes to default probabilities.
C. Scenarios gather empirical data on corporate exposure to transition risk by using industry expert
opinions and tailored assessments.
D. Scenarios use a systematic and repeatable approach to extrapolate the risk assessed by the other
modules.
Correct answer: A
Explanation: A is correct as it represents transition scenarios. Scenarios provide a consistent reference
point, and common parameters, that experts use to assess the impact of transition across institutions,
geographies, and sectors.
B is incorrect as this explains how borrower-level calibration is used.
C is incorrect as this still explains the use of borrower-level calibration.
D is incorrect as this refers to the portfolio impact assessment module.
Module: 5 Climate Scenario Analysis
Knowledge point: Transition and physical climate scenarios
Learning objective: Explain how scenarios are used for assessing transition risk.
Reference: UNEP Finance Initiative. (2018). Extending Our Horizons - Assessing credit risk and
opportunity in a changing climate: Outputs of a working group of 16 banks piloting the TCFD
Recommendations. Part I: Transition-related risks and opportunities (pages 12–62).
18
11. Climate change can both directly and indirectly impact mental health. Which of the following illustrates
an indirect impact of climate change on mental health?
A. Resource loss related to sea-level rise
B. Homelessness due to wildfire incidents
C. Extreme heat related to an extreme weather event
D. Hurricane-related damage to infrastructure
Correct answer: A
Explanation: A is correct as resource loss related to sea-level rise is an indirect impact of climate change
on mental health. Sea-level rise impacts resources such as agricultural crop loss, land loss, or potable
water loss and is not usually an event but is an overall effect of climate change impact on the planet and
public health.
B is not correct as homelessness due to increased wildfire occurrences would be a direct climate impact
of an extreme event.
C is not correct as extreme heat related to an extreme weather event is an example of a lesser known but
direct impact of climate change, the extreme event directly affecting mental health.
D is not correct as hurricane-related damage to infrastructure would be a direct climate impact.
Module: 6 Current Issues in Sustainability and Climate Risk
Knowledge point: Health effects, disease, and vector migration
Learning objective: Describe the connections between a changing climate and the increased risks of
health effects on humans.
Reference: Hayes, K. and Poland, B (2018). Addressing Mental Health in a Changing Climate:
Incorporating Mental Health Indicators into Climate Change and Health Vulnerability and Adaptation
Assessments. International Journal of Environmental Research and Public Health. 15(9) (pages 1-15).
doi:10.3390/ijerph15091806
19
12. Frameworks for assessing the economic impacts of Arctic change give specific attention to the knockon (i.e., secondary effects) of climate change. The economic costs and benefits associated with these
global knock-on effects are most relevant to which of the following areas?
A. Methane release
B. Commodity pricing
C. Infrastructure costs
D. Arctic security
Correct answer: B
Explanation: B is the correct answer as in addition to climatic feedbacks and teleconnections associated
with Arctic change, economic developments in the Arctic region itself are likely to generate various costs
and benefits globally through knock-on effects in the economy. These are manifested by Arctic-driven
shifts in commodity prices and trading patterns, potentially leading to changes in economic sectors and
social welfare in multiple countries around the world.
A is not correct as methane release, while an important and studied area of the Arctic and associate
impacts do not represent the crux of knock-on effect studies on the economy to-date.
C is not correct as this is also an area where, potentially, Arctic-driven shifts may lead to changes, but is
not, to-date, mentioned as an area for knock-on effects.
D is not correct as this is also an area where, potentially, Arctic-driven shifts may lead to changes, but is
not, to-date, mentioned as an area for knock-on effects.
Module: 6 Current Issues in Sustainability and Climate Risk
Knowledge point: Economic impacts of Arctic change
Learning objective: Discuss the economic knock-on effects with the Arctic (and greater globe) due to the
impacts of climate change.
Reference: Alvarez, J., Yumashev, D., and Whiteman, G. (2019). A framework for assessing the
economic impacts of Arctic change. Ambio. (pages1-9). doi: 10.1007/s13280-019-01211-z
20
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ABOUT GARP | The Global Association of Risk Professionals is a nonpartisan, not-for-profit membership organization focused on elevating the
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— the Financial Risk Manager® and Energy Risk Professional® — as well as
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