Sustainability and Climate Risk (SCR) — Question 34

The CRO at a commercial bank in China examines the negative impact of climate-related physical risk on clothing manufacturer cash flows that subsequently lead to higher credit risk.
The CRO observes which event leading to increased credit risk from climate physical risk?

Answer options

• A. Decrease in production capacity due to higher labor absenteeism
• B. Disruptions in the raw material supply due to climate adaptation
• C. Rising costs of outdated manufacturing equipment write-offs
• D. Higher costs of adaptation to stricter new low-carbon standards

Correct answer: B

Explanation

The correct answer is B, as disruptions in the raw material supply directly affect the production of clothing manufacturers, leading to cash flow problems and higher credit risk. Options A, C, and D could also impact the financial situation, but they do not directly relate to the supply chain disruptions caused by climate adaptation, which is the core issue leading to increased credit risk.