Sustainability and Climate Risk (SCR) — Question 59

Senior management at a global manufacturer of commercial flooring explores strategies to reduce capital costs and improve company valuation, resulting in a comprehensive sustainability strategy. Management determines all future flooring products will be carbon neutral across their full product life cycle. The risk team is tasked with updating the company ERM framework in accordance with COSO guidelines to include ESG and climate-related risks. The team reviews and updates each of the ERM components.
What action should the team recommend the company take as part of the communication component of the ERM framework?

Answer options

• A. Determine which transmission channel of climate risk drivers is most relevant for the company.
• B. Assess the relative importance of various climate risk and sustainability risk drivers.
• C. Build climate risk into existing legal and compliance processes.
• D. Establish processes to convey climate and sustainability risk exposure.

Correct answer: D

Explanation

The correct answer is D because establishing processes to communicate climate and sustainability risk exposure is essential for transparency and stakeholder engagement. Options A, B, and C focus on identifying or assessing risks without addressing the critical need for effective communication within the ERM framework.