Sustainability and Climate Risk (SCR) — Question 2

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?

Answer options

• 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.

Correct answer: C

Explanation

The correct answer is C because it focuses on understanding how climate risk influences financial risk, which is crucial for the utility to prepare for potential impacts. Options A and B do not directly address the integration of climate risk into the risk identification process, while D emphasizes risk evaluation rather than identification.