• Renewable Standards Portfolio (RSP): is an umbrella term for a
Climate Risk and Supervisions
SCR Exam
cheat sheet
Link for Udemy Course on SCR Prep
Introduction
• Global efforts to agree on climate policies have faced challenges
like disagreements on emission reductions, collective action
difficulties, and fairness concerns due to different countries'
historical emissions and future growth plans
International Policies
• 1980s – scientific consensus on human influence on climate
• 1988 – Formation of IPCC – UN-convened org of scientists
• UNFCCC – a UN body dedicated to climate change, the first
worldwide climate agreement, the UNFCCC, was established in
1992 at the Rio Summit
• Scientists agreed that even lower levels of warming can lead to
“tipping points” > limit of 2 degrees Celsius agreement
• Allocation of responsibility = Country’s wealth + Historical Emission
• Cumulative CO2 emissions, not current annual emissions are imp
• Major issue: The inherent difficulties of collective action
• Earth’s climate is a global public good
Brief history of int’l climate agreements
• Summits of UNFCCC are called COPs – Conference of Parties
• COP1 – Berlin – 1995
• COP3: The Kyoto Protocol in 1997 required high-income countries
to reduce emissions by 5% from 1990 levels by 2008-2012
• Kyoto Protocol failures – developing countries were not subject to
any kind of obligations; fundamentally, it provided no way to
overcome the collective action problem
• COP21: 2015: The Paris Agreement: Aimed for a 1.5-2°C
temperature reduction, with non-binding plans from all countries,
relying on peer pressure; it also proposed Nationally Determined
Contributions (NDCs) which are to be submitted to UNFCCC –
periodically re-evaluated
• Paris Agreement uses a “ratchet” mechanism, where countries
are expected to tighten their NDCs every 5 years
NDCs & National Climate Policies
• Achieving NDCs requires having a domestic climate policy >
economy-wide (typically a form of carbon tax) or sector-specific
• Carbon Pricing (2 policies): Carbon Taxes: Impose price per ton
of CO2 emitted. Cap-and-Trade: The total amount of emissions is
capped but emissions permits can be traded between participants
• Trading schemes can create credible cash flows but also can
cause volatile carbon pricing
Chapter IV – Sustainability and Climate Policy, Culture, and Governance
range of quota-based regulations; requires electricity producers to
source some portion of supply from renewable energy sources
• Central Banks largely incorporated climate change into
their supervision practices
• Feed-in-tariff: offers a guaranteed price/unit of electricity
generated at which producers can sell electricity for a fixed period
• NGFS – Network for Greening the Financial System
• Fuel efficiency standards & emissions standards for cars • Both Micro and Macroprudential supervision are included
• An increasing portion of climate policy is implemented at the • Stress tests are micro- and macroprudential tool
subnational level e.g., States, regions, or cities • Audits and marketing disclosures are being used by
• Some subnational efforts function as networks and advocacy regulators to prevent greenwashing and do enforcement
efforts. C40: A global coalition of cities: currently 97 cities
Private Sector Sustainability Frameworks
GHGs Emissions Accounting
• The Investor Agenda consists of IIGCC & 6 other groups
• GHG protocol was established by the World Resources Institute
(WRI) & WBCSD. GHG protocol focus: Direct & Indirect Emissions
working with investors
• Direct: Emissions from sources that are owned or controlled by • Climate Action 100+: An investor coalition – 575 members
the reporting company & US$ 54 trillion in AUM – Targeting 100 most heavily
• Indirect: Emissions that are a consequence of the activities of emitting publicly listed companies
the reporting company but occur at sources owned or controlled by
another company. Emissions are further divided in Scope 1, 2, & 3 Nature, Biodiversity, & Climate Change
• Scope 1: Direct emissions from owned or controlled sources • As per WEF, more than 50% world’s economic output (US$
• Scope 2: Indirect emissions from the generation of purchased 44 tn) is moderately or highly dependent on nature
electricity
• June 2021 – Task Force on Nature-related Financial
• Scope 3: Indirect emissions that occur in the value chain of the
reporting company including both upstream and downstream Disclosures (TNFD) was established
• Scope 3 emissions are by far the largest part of overall emissions • TNFD Framework – 4 pillars: Governance, Strategy, Risk
for companies’ products and services. It is also most difficult to Management, Metrics & Targets
measure.
• Double Counting Issue: refers to the challenge of accurately
measuring and attributing indirect emissions from a company's
entire supply chain, making it difficult to account for the full
environmental impact. Due to this GHG protocol recommends
that scope 3 emissions should not be aggregated
Climate Risk & Financial Policy
• Government policies, international institutions, and private
investors are driving the transition to a sustainable, green
economy through green finance and sustainability products.
• Multilateral Development Banks (MDBs) e.g., World Bank, are
tasked with supporting public-sector investment in physical &
human capital projects conducive to socioeconomic development
• Financial sector promotion & policymaking around financial
centres have started to include green elements e.g., FC4S
Green Taxonomies & Financial Regulations
• Taxonomies: List of economic activities considered “green”
• EU Taxonomy sets performance thresholds (technical screening
criteria) for economic activities by sector and sub-sector
• It’s very challenging to assess each economic activity
• Green Taxonomy drawbacks: 1. Binary “green” assessment:
Not all assets are simply green or not green, there are some with
“shades of green” 2. Lobbying 3. Asset Bubbles 4. Sub-optimal
targeting 5. Decreased Quality