Sustainability and Climate Risk (SCR) — Question 57

A credit loan officer at a commercial bank reviews a loan application from a company engaged in coal-fired power generation. The loan officer examines transition risks associated with the company’s business strategy.
What policy risk driver should the loan officer identify?

Answer options

• A. Prices of solar photovoltaic panels have declined since 2015.
• B. Activists and advocacy organizations increasingly file lawsuits against fossil fuel-based power companies.
• C. Lending to a coal-fired power plant will hurt the bank’s public image.
• D. A government proposes legislation to mandate closure of all coal-fired power plants by 2035.

Correct answer: D

Explanation

The correct answer is D because proposed legislation to close coal-fired power plants directly impacts the viability of the business and presents a clear policy risk. Options A and B, while relevant to market dynamics and social activism, do not represent direct policy risks. Option C addresses reputational risk, which is important but is not a specific policy change.