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Exam SCR topic 1 question 16 discussion

Actual exam question from GARP's SCR

Question #: 16
Topic #: 1

A major hurricane extensively damages the electrical infrastructure of a utility company. To improve the utility’s risk management, the risk director prepares a strategy plan and incorporates climate risk considerations within the existing risk management framework.
Which recommendation should the director make to incorporate climate risk into the framework’s risk identification component?

A. Evaluate the vulnerability and adaptive capacity of facilities using data gathered on the scope of climate risks.
B. Flag any substantial changes in the utility’s external environment to trigger a modification of the risk management process.
C. Examine the transmission channels of climate risk drivers into financial risk to determine which risks are likely to materialize for the utility.
D. Rate risks on impact and level of control to focus on risks with the most severe impact but over which the utility has the most control to improve outcomes.

Show Suggested Answer

Suggested Answer: C 🗳️

by goodforme at March 5, 2023, 2:56 a.m.

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Kai_Kohi

1 year, 1 month ago

The answer is C. The question describes the utility company's risk management framework. Therefore, what recommendation should the director make to incorporate climate risk into the framework's "risk identification" component? The major hurricane throws you off, but the main purpose is incorporating climate risk within existing risk management framework.

upvoted 1 times

Kai_Kohi

1 year, 1 month ago

To add, Risk Assessment describes "..internal risk assessment for a company will also require assessing the VULNERABILITY and ADAPTIVE CAPACITY of these facilities". This discusses about Risk Identification which involves "articulating the potential impact on business operations and strategy.

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Gs2410

1 year, 7 months ago

Selected Answer: A

The question itself is confusing. It says about the Utility's Climate Risk- in that case the answer should be C i.e. Transmission Channels. But hurricane was physical risk and if by highlighting the physical risk event, the question is indicating that only physical risk is to be taken in to consideration then answer is A

upvoted 3 times

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2shig

2 years, 1 month ago

It is A. Because the issue is physical risks. Be careful with voted answers.

upvoted 4 times

CecileC

2 years, 1 month ago

A is wrong. A is within the 2nd step of COSO ERM as it's more about defining risk appetite. Risk identification is within the 3rd step of COSO ERM.

upvoted 1 times

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sbrudersohn

2 years, 1 month ago

Selected Answer: C

Risk identification starts with examining the transmission channels of climate risk drivers into financial risk (Sections 6.2–6.4) and then identifying which of these are the most relevant for a particular organization.

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SCRnow

2 years, 1 month ago

@goodforme: There is no indication, that the company is applying the COSO ERM Framework and also "Performance" component is not the question here (which consists of Risk identification, Risk assessment and risk prioritization). Answer A seems more plausible. Physical Risk is a result of potential harm (e.g. storm) exposure (location where hurricans occur) and understanding vulnerability is vital, so you can take measures (mitigate, adapt, etc.)

upvoted 2 times

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Karnitschnig

2 years, 1 month ago

Selected Answer: C

Risk identification starts with examining the transmission channels of climate risk drivers into financial risk

upvoted 2 times

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goodforme

2 years, 2 months ago

Selected Answer: C

upvoted 3 times

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