Sustainability and Climate Risk (SCR) — Question 35

A climate analyst at a research institution analyzes climate risk for various companies. The analyst examines transmission channels of climate risk as part of the risk identification process.
Which of the following examples can the analyst use to describe an operational risk transmission channel?

Answer options

• A. A damaging hurricane leads to a run on credit as affected communities need cash to fund recovery efforts.
• B. Following a high carbon tax, a company strands high-emissions assets.
• C. High commodity prices boost revenues for a mining company that extracts lithium.
• D. Flooding damages an information technology company data center.

Correct answer: D

Explanation

The correct answer, D, illustrates how operational risks can be transmitted through physical damage to infrastructure, such as a data center. Options A, B, and C describe financial or strategic risks but do not directly pertain to operational risk transmission, which is specifically about how operational capabilities are impacted by climate events.