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GARP Sustainability and Climate Risk SCR Question # 16 Topic 2 Discussion

GARP Sustainability and Climate Risk SCR Question # 16 Topic 2 Discussion

SCR Exam Topic 2 Question 16 Discussion:
Question #: 16
Topic #: 2

An insurance firm announces it will adopt sustainable practices. To inform sustainable strategy, a company risk analyst researches climate risk. The analyst reviews how climate risk manifests as financial risk through effects on microeconomic company-level risks on various types of companies and institutions. The analyst also identifies possible opportunities resulting from climate risk. Risks and opportunities are presented to senior management.

Which of the following does the analyst cite as an example of how climate risk affects liquidity risk?


A.

A company’s warehouse that is damaged by a tornado causes business interruption that results in loss of revenues and profits, which weakens the company’s ability to repay loans.


B.

A mining company that extracts lithium for lithium-ion batteries benefits from higher commodity prices, which increases revenue and profits.


C.

A company’s high-emissions factory is hit with a higher carbon tax that results in asset stranding, which causes the company to have less collateral to use to secure funding.


D.

A bank’s customers withdraw deposits and draw on credit lines to finance cash-flow needed for recovery after damaging flooding, which increases loan-to-deposit ratios.


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