Sustainability and Climate Risk (SCR) — Question 55

A private equity fund invests in infrastructure development and agro-industrial projects. The fund hires a team of climate risk consultants to advise on investment structure and the potential climate risks to the fund. The team recommends data types and analytical tools to evaluate physical and transition risk impact at the company level.
How should the company evaluate company-level physical risk?

Answer options

• A. Calculate CVaR to offer quantitative estimates of expected financial losses or gains from climate risks and opportunities.
• B. Develop company scores that combine proprietary methodologies with downscaled climate model data.
• C. Measure the degree of corporate alignment to opt-in initiatives like the Transition Pathway Initiative’s Science-Based Targets.
• D. Categorize carbon emissions as Scope 1, 2, or 3, and disclose corporate carbon footprints to data providers.

Correct answer: B

Explanation

The correct answer is B because developing company scores that utilize proprietary methodologies alongside downscaled climate model data allows for a tailored and precise evaluation of physical risks. Other options, while relevant in assessing climate impact, do not directly address the evaluation of physical risk at the company level as effectively as option B does.