Sustainability and Climate Risk (SCR) — Question 32

An EU juice producer heavily relies on Brazil’s supply of oranges to produce its top-selling orange juice brand. The producer anticipated steady growth, but production decreased due to the rise in mean temperature in Brazil.
The climate-related risk of mean temperature rise in Brazil increases what indirect effect?

Answer options

• A. The chronic market risk of a temperature rise disrupts the supply chain for oranges, reversing the significant asset write-offs for the juice producer.
• B. The chronic physical risk of a temperature rise decreases the production of oranges and subsequently negatively impacts the profits of the juice producer by reducing the production of the juice brand.
• C. The acute reputational transition risk of a temperature rise decreases production due to health-related issues with workers in Brazil, leading to reduced demand for the juice brand.
• D. The acute physical risk of a temperature rise disrupts the supply chain for oranges, creating financial losses for the juice producer due to its inability to honor its supply contracts.

Correct answer: B

Explanation

The correct answer is B because the chronic physical risk associated with rising temperatures leads to lower orange yields, directly affecting the juice producer's ability to generate profits. Options A, C, and D focus on different aspects or types of risks that do not directly link to the production decrease and its impact on profits.