Cheat sheets content 6-10

Question 1

Operational R def

Answer 1

it reflects
potential losses from inadequate or failed internal
processes, systems, human error, or outside events

Question 2

Categories of Operational R when analyzing С risk

Answer 2

Legal R
Strategic R
Reputation R

Question 3

Liquidity R def

Answer 3

Liquidity risk is about losing access to liquidity-the ability to
quickly and easily convert assets into cash

Question 4

Key metrics for liquidity R

Answer 4

Loan-to-deposit ratio
Bid-ask spreads

Question 5

cross-subsidizing def

Answer 5

“Cross-subsidize” means they use profits from one part of their business to cover losses in another.

Question 6

Underwriting risk

Answer 6

Underwriting risk = risk of loss from incorrectly assessing the risk of a client or contract, based on info collected during Client Due Diligence (loan, insurance, etc.).

Question 7

Client Due Diligence VS underwriting

Answer 7

Due diligence = info gathering & checking.
Underwriting = risk evaluation based on that info.

Question 8

Climate Minsky Moment

Answer 8

Sudden collapse (drop, but not necessarily to 0) of asset values

Question 9

2 mech of С risk translating into market risk

Answer 9

Asset repricing and dislocation effects
Asset stranding

Question 10

Key meteric for Climate Market risk

Answer 10

Climate VaR - estimate of C-related financial losses, from both transition and physical R

Question 11

Sovereign risk def + ex

Answer 11

Sovereign risk is the risk that a government will default on its debt obligations or fail to honor contracts (e.g. from foreign investors). Example - Argentina defaulted multiple times on its sovereign debt

Question 12

Stranded nation def

Answer 12

Nations heavily reliant on fossil fuels
exports may turn into stranded nations

Question 13

Which data is needed to assess transition risks?

Answer 13

GHG data
Policy landscapes
Tech changes
Consumer preferences

Question 14

What data is needed for physical R assessment?

Answer 14

Cur & future physical hazards from hist data & climate models
Toography / location of assets
Info about vulnerability and adaptive capacity

Question 15

Metrics for portfolio level analysis

Answer 15

GHG emissions / portfolio market value [tCO2e / mil invested]
WACI [tCO2e / mil of revenue]

Question 16

COSO ERM + 5 components

Answer 16

Committee of Sponsoring Organizations ERM

1. Governance & Culture - oversight responsibilities, values, risk culture.
2. Strategy & Objective-Setting - business objectives, R appetite + strategy alignment
3. Performance -
4. Review & Revision - evaluate performance of ERM
5. Information, Communication & Reporting & Disclosure - ensure relevant R is captured, shared + used for decision making

Question 17

3 components for tracking performance for ESG & С risks

Answer 17

1. Risk identification - examining the transmission
   channels of climate risk drivers into financial risk and then
   identifying which of these are the most relevant for a
   particular organization.
2. Risk assessment - gathering data on the actual
   scope of these risks (at counterparty level for fin inst)
3. Risk prioritization - rank these in order of
   importance - by likelihood of occurrence, adaptability and complexity, or severity.

Question 18

5 Risk responses

Answer 18

1. Acceptance
2. Avoidance
3. Pursuit
4. Reduction,
5. Sharing

Question 19

Reference scenarios

Answer 19

a set of agreed-upon projections
of global emissions trajectories, with accompanying socio-
economic narratives and estimates for physical impacts

Question 20

IPCC what it does

Answer 20

Its scenarios are most widely used and agreed upon

Question 21

Lagging feature of physical risk

Answer 21

physical
outcomes of climate change are practically the same for
the next few decades (until about 2050) regardless of
emissions

Even if we stopped emitting all GHGs today, the Earth would continue to warm slightly for decades, and seas would keep rising.

Question 22

Net zero def

Answer 22

Drastically reduce GHG emissions across all sectors + neutralize remaining (residual) emissions with carbon removal (like direct air capture, reforestation) — or, often, carbon credits (but you can’t get off with 100% carbon credits)

Question 23

How are RCPs named? What does this number mean?

Answer 23

based on the amount of radiative
forcing measured in watts/meter squared (m2)

RCP number = radiative forcing (W/m²) at 2100.

Question 24

Which RCPs are available and which tempeartures do they correspond to?

Answer 24

RCP2.6 → ~1.5–2°C

RCP4.5 → ~2.4–3°C

RCP6.0 → ~3–4°C

RCP8.5 → ~4.3–5°C (or more)

Question 25

5 SSPs with description

Answer 25

SSP-1 scenario of significant focus on sustainability; SSP-2 is a "business as usual" scenario SSP-3 regional rivalry between countries SSP-4 has a high degree of inequality; SSP-5 posits fossil-fuel development

Question 26

Integrated assessment models

Answer 26

The models that can assess the combination of social, economic, energy, emissions, and climate factors are called integrated assessment models (IAM)

Question 27

RCP vs SSP interaction

Answer 27

Not all RCPs are achievable under all SSPs - a high-mitigation scenario is not feasible under the SSP3 "regional rivalry" assumptions For example: - SSP1 + strong climate policy → emissions pathway → RCP2.6 - SSP3 + no climate policy → high emissions → RCP8.5 They are complementary: SSP = "how the world works and behaves." RCP = "climate outcome of that behavior.".

Question 28

PACTA + what it is

Answer 28

Paris Alignment Capital Transition Assessment

Question 29

Paris Agreement temperature formulation

Answer 29

"hold the increase in global average temperature to well below 2°C above pre-industrial levels" and pursue "efforts to limit the temperature increase to 1.5°C."

Question 30

Race to Zero

Answer 30

7,500 entities joined the Race to Zero via one of the member alliances and submitted their respective commitments

Question 31

NZIA

Answer 31

Net Zero Insurance Alliance - net-zero initiative for insurers and currently brings together 20 companies that jointly represent 11% of the world premium volume

Question 32

Consumption-based accounting

Answer 32

accounting methods, which measure the cumulative emissions that arise from the production of all goods and services consumed in that country,

Question 33

Two GHG reporting standards and who developed them

Answer 33

BASIC & BASIC+, developed by GHG protocol

Question 34

BASIC

Answer 34

GHG reporting standard by GHG protocol BASIC level emissions inventories cover scope 1 and 2 emissions from stationary energy and trans port, as well as scope 1 and 3 emissions from waste

Question 35

Basic +

Answer 35

GHG reporting standard by GHG protocol. BASIC+ level inventories are significantly more comprehensive and cover sources such as scope 3 emissions from transboundary transport and scope 1 emissions from agriculture, forestry, and land use

Question 36

7 characteristics of a transition plan by TCFD

Answer 36

(a) aligned with overall corporate strategy (b) anchored in quantitative metrics and targets (c) subject to an effective governance process (d) full of actionable, specific initiatives (e) credible (f) periodically reviewed and updated (g) reported annually to stakeholders

Question 37

7 attributes of net 0 targets

Answer 37

1. Front-loaded emission reductions - to minimize cumulative greenhouse gas concentrations and avoid reliance on future 2. Comprehensive approach to emission reductions - addressing all emission sources 3. Cautious use of carbon dioxide removal - limited reliance on carbon removal technologies 4. Effective regulation of carbon offsets - stringent oversight of carbon offset mechanisms for integrity 5. Equitable transition to net zero - ensuring that the low-carbon transition considers the needs of all communities 6. Alignment with broader socio-ecological objectives - integrating net-zero strategies with wider environmental and social goals 7. Pursuit of economic opportunities - potential for economic growth and innovation in the transition to net zero

Question 38

Carbon leakage

Answer 38

Carbon leakage happens when efforts to reduce emissions in one country or region lead to increased emissions elsewhere, often because businesses relocate to places with weaker climate policies.

Question 39

4 key transition risk

Answer 39

Policy & legal Market Reputation Technology

Question 40

PAT what it is and example

Answer 40

Portfolio Alignment Tools that help investors set targets and assess how aligned their portfolios are with climate goals like net zero e.g. MSCI Climate VaR

Question 41

TCFD and what that is

Answer 41

Organization. Developed TCFD recommendations - reporting standard for climate-related fin R and opportunities - Govnance - Strategy - RM - Metrics / targets

Question 42

SASB what that is, what it did

Answer 42

Sustainability Accounting Standards Board - ORGANIZATION, now part of ISSB Created standards for industry-specific sus disclosure (SASB standards)

Question 43

ISSB what it is and what it did

Answer 43

Organization under IFRS. Creates standards for global sustainability and climate reporting (e.g., IFRS S1 and S2). ISSB builds on TCFD, that was decomissioned in 2023. Through IFRS S2 standard, ISSB replaced TCFD

Question 44

GRI - what it is and what it did

Answer 44

Organization. Produces the GRI Standards — the most widely used for general sustainability reporting.

Question 45

CSRD what it is what it did

Answer 45

Regulation! Law by EU. Corporate sustainability Reporting Directive. It requires companies to report using ESRS (European Sustainability Reporting Standards).

Question 46

Climate Risk Assessment VS Climate Risk measurement

Answer 46

Measurement - quantifying the risk (fin metrics, risk drivers, measures). Ex - sea level rise will cost 50mil by 2050. Assessment - identify potential hazards, likelihood, consequences, vulnerability & exposure. Ex - "our supply chain in Asia is exposed to flood risk"

Question 47

NGFS - what is is, what it did

Answer 47

Organization. A coalition of central banks & supervisors. Provides climate scenarios, research, and guidance for managing climate-related financial risks.

Question 48

IFRS S1, what it is and who made it

Answer 48

ISSB standard for general sustainability-related disclosures — governance, risks, strategy, metrics. Broad scope (not only climate).

Question 49

IFRS S2, what it is and who made it

Answer 49

ISSB standard for climate-related disclosures. Builds on TCFD, fully integrates it and same pillars (Governance, Strategy, Risk Management, Metrics & Targets). Covers emissions, scenario analysis, transition risks, etc.

Question 50

TCFD VS NGFS

Answer 50

TCFD develops voluntary guidelines for climate related financial disclosures; NGFS integrates climate risk management into the financial sector & develops scenario analysis framework

Question 51

TCFD VS ISSB

Answer 51

ISSB develops global baseline for sustainability reporting. Provides specific standards like IFRS S1. ISSB has included TCFD recommendations too.

Question 52

ISO 14091

Answer 52

Standard (doc) About how to understand vulnerability and develop and implement a sound risk-assessment process.

Question 53

ISO/TR 14092

Answer 53

Technical report, Offers practical guidance for local governments & communities on developing climate adaptation plans. Builds on 14091.

Question 54

Steps for Physical Risk Assessment by NGFS

Answer 54

Steps in PRA based on NGFS: 1. Define needs and objectives 2. Identify available data and resources 3. Define the scope and approach 4. Generate climate scenario 5. Estimate impact 6. Present and interpret the results

Question 55

Nature risk def

Answer 55

risks associated with the loss of natural assets.

Question 56

2 key aspects of Nature Risk

Answer 56

the business's dependencies on nature and its impacts on nature.

Question 57

Relation btw nature risk and C risk

Answer 57

distinct but interdependent, they can amplify each other

Question 58

4 pillars of TNFD

Answer 58

1. Governance - How nature-related issues are managed and overseen at the board and executive level, decision-making structures, accountability, roles & responsibilities 2. Strategy - integrating Nature R into organizational strategy - short/med/long term plans + resilience 3. Risk & Impact Assessment - identify & evaluate N-related R 4. Metrics & Targets - Disclose quantitative and qualitative indicators on nature-related impacts + targets. E.g. lang use, water consumption

Question 59

Funding gap

Answer 59

Insufficiency of funds to meet the goal

Question 60

Transition planning

Answer 60

Process of developing a transition strategy

Question 61

Transition plan def

Answer 61

Key product of transition planning; an external-facing output; overall strategy with firm’s targets, actions or resources for its transition.

Question 62

Transition finance

Answer 62

financial products/services to support counterparties realize alignment with sustainability.

Question 63

GFANZ what it is what it does

Answer 63

Glasgow Fin Alliance for Net Zero - coalition that Brings together financial institutions committed to net-zero by 2050; provides guidance, frameworks, and sector pathways

Question 64

TPT what it is what it does + 3 guiding principles

Answer 64

Transition Plan Taskforce. UK - Develops best practice guidance for credible private-sector climate transition plans Ambition - plan has to be ambitious Action - lay out concrete steps to achieve ambition (milesones, plans, ...) Accountability - governance, oversight, transparency for credible delivery

Question 65

4 elements of credible net 0 targets by SBTi

Answer 65

1. Near-Term Science-Based Targets - 5–10 year emission reduction targets aligned with 1.5°C. 2. Long-Term Science-Based Targets - Reduce emissions by at least 90–95% by 2050 at the latest 3. Beyond Value Chain Mitigation (BVCM) - Voluntary action to finance climate solutions outside of a company’s value chain 4. Neutralization of resid emissions - Permanent removal of residual emissions (5–10%) that cannot be eliminated.

Question 66

What plays central role in transition plans?

Answer 66

GHG metrics and targets

Question 67

Carbon reporting

Answer 67

process of documenting and disclosing GHG emissions by organizations.

Question 68

Operational boundaries VS organizational boundaries

Answer 68

Organizational - Which entities (subsidiaries, joint ventures, etc.) are included in your GHG inventory - equity share or control approach. Operational - Which types of emissions you report — categorized by Scope 1, 2, and 3.

Question 69

Drawbacks of equity approach GHG accounting and control approach GHG accounting

Answer 69

equity - May not fully capture the environmental impact of a firm’s operations; Could allow firms to underreport emissions by strategic investment allocation. control - can lead to double counting (e.g. A has fin control, B has operational control, both report 100% of emissions)

Question 70

Financed emissions def and which scope is it?

Answer 70

GHG emissions that are attributed to the loans, investments, & financial services offered by financial institutions. Scope 3, category 15 (Investments) of GHG protocol’s Corporate Value Chain Accounting & Reporting.

Question 71

Normalization of financed emissions

Answer 71

Converting emissions -> emission intensity Financed emissions / mil$ revenue Financed emissions / loan, invested amount [$] Financed emissions / enterprise value

Question 72

Attribution factor + example

Answer 72

Proportion of emissions of the borrower/investee that are allocated to the loan or investments. Ex: A bank gives a $20 million loan to a company whose total outstanding debt + equity is $100 million. The company emits 10,000 tCO₂e per year. The financed emissions are 2,000, bc the attribution factor is 0.2

Question 73

Data Quality Scores

Answer 73

Categorizes GHG emissions data quality on a scale from 1 (Best) to 5 (Worst). Score 5: Error Margin (EM) 5-10%; Estimated data. Score 4: Proxy data based on regional / country average. Score 3: Averaged sector-specific data; More uncertain. Score 2: Based on primary data but not audited Score 1: Most reliable and audited.

Question 74

How many SDGs and targets?

Answer 74

17 + 169.