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GARP Sustainability and Climate Risk Certificate Climate Finance, Climate Risk & Sustainable Investment: practice questions

GARP Sustainability and Climate Risk (SCR) Certificate · International · Global Association of Risk Professionals

Original practice questions written to the published syllabus · not past papers
10worked here, free
81written to this exam in this subject
10syllabus units

What this subject covers

Money for climate and sustainability and the risks climate poses to money: public climate finance, green bonds, taxonomies, physical and transition risk, scenario analysis, and ESG integration in agricultural lending and investment. Agricultural finance and credit are in the Agribusiness track; this subject is the climate and sustainability layer.

In the exams: GARP SCR (whole exam); CFA Institute Sustainable Investing Certificate; UPSC CSE GS-III (climate finance)

Where the 81 questions fall

How our questions for GARP Sustainability and Climate Risk Certificate spread across the units of Climate Finance, Climate Risk & Sustainable Investment. Difficulty: 16 easy, 45 medium, 20 hard.

Transition plans and their credibility10
Green, social, sustainability and sustainability-linked bonds9
Sustainable finance taxonomies9
Physical and transition risk9
Climate risk measurement and stress testing9
Nature-related financial risk9
Blended finance for agriculture and adaptation9
Climate scenario analysis for portfolios8
Public climate finance: multilateral funds and the new collective goal7
ESG integration, screening and stewardship2

10 practice questions, worked

Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.

1 · Green, social, sustainability and sustainability-linked bonds · easy

A USD 500 million sustainability-linked bond has a 5.00 per cent coupon and a 25 basis point step-up if its emissions target is missed. If the target is missed, how much extra interest does the issuer pay each year?

  1. USD 25.00 million
  2. USD 1.25 million
  3. USD 12.50 million
  4. USD 0.125 million
Answer and working

B. USD 1.25 million

Extra interest = 500 × 0.0025 = USD 1.25 million; the coupon becomes 5.25%. 12.50 treats 25 bp as 2.5%; 0.125 slips a factor of ten; 25.00 confuses basis points with millions.

Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation

2 · Green, social, sustainability and sustainability-linked bonds · medium

What does the European Green Bond Standard require that the voluntary ICMA principles do not?

  1. Issuance only by EU member state governments, never by companies
  2. A guarantee from the European Central Bank on every bond issued
  3. A minimum coupon step-up of 100 basis points if targets are missed
  4. Taxonomy-aligned proceeds plus a registered external reviewer
Answer and working

D. Taxonomy-aligned proceeds plus a registered external reviewer

The EU GBS (regulation 2023, applying from December 2024) requires Taxonomy-aligned use of proceeds and external review by ESMA-registered reviewers. It has no step-up, is open to corporates, and carries no ECB guarantee.

Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation

3 · Green, social, sustainability and sustainability-linked bonds · easy

Which institution issued the first Climate Awareness Bond in 2007, widely regarded as the first green bond?

  1. The World Bank
  2. The Asian Development Bank
  3. The Green Climate Fund
  4. The European Investment Bank
Answer and working

D. The European Investment Bank

The EIB issued the Climate Awareness Bond in 2007; the World Bank issued its first green bond in 2008. The GCF did not exist until 2010.

Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation

4 · Sustainable finance taxonomies · medium

What does the Common Ground Taxonomy do?

  1. Sets minimum ESG ratings for companies listed on any stock exchange
  2. Compares the EU and Chinese taxonomies to identify overlapping activities
  3. Defines carbon credit eligibility under Article 6 of the Paris Agreement
  4. Replaces all national taxonomies with one binding global list
Answer and working

B. Compares the EU and Chinese taxonomies to identify overlapping activities

Developed under the International Platform on Sustainable Finance, it maps commonalities between the EU and Chinese taxonomies to support interoperability. It is not binding, unrelated to Article 6 credits, and not a rating scheme.

Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation

5 · Climate risk measurement and stress testing · medium

What did the early supervisory climate exercises, such as the Bank of England's 2021 CBES and the ECB's 2022 stress test, broadly find?

  1. Climate risk posed no material losses under any scenario, so no further work was needed
  2. Banks had complete data on all clients' emissions and physical risks already
  3. Early, orderly action minimised losses, and banks' climate data were limited
  4. Late action produced lower losses than early action because technology was cheaper
Answer and working

C. Early, orderly action minimised losses, and banks' climate data were limited

Both exercises found early action minimised losses and highlighted major data and capability gaps. They did not find climate risk immaterial or late action cheaper.

Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation

6 · Nature-related financial risk · easy

What are the four steps of the TNFD's LEAP approach?

  1. Learn, Engage, Act, Publish
  2. Locate, Evaluate, Assess, Prepare
  3. Limit, Exclude, Avoid, Protect
  4. List, Estimate, Allocate, Price
Answer and working

B. Locate, Evaluate, Assess, Prepare

LEAP: Locate the interface with nature, Evaluate dependencies and impacts, Assess risks and opportunities, Prepare to respond and report.

Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation

7 · Nature-related financial risk · medium

Which Kunming–Montreal target asks governments to enable businesses and financial institutions to assess and disclose biodiversity risks, dependencies and impacts?

  1. Target 15
  2. Target 18
  3. Target 3
  4. Target 23
Answer and working

A. Target 15

Target 15 concerns business and financial disclosure. Target 3 is '30 by 30' conservation; Target 18 is harmful subsidies; Target 23 is gender equality.

Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation

8 · Blended finance for agriculture and adaptation · hard

A 100 million agricultural fund has a 10 million first-loss tranche. If the portfolio loses 15 million, how much do senior investors lose?

  1. 0 million
  2. 5 million
  3. 1.5 million
  4. 15 million
Answer and working

B. 5 million

The first-loss tranche absorbs the first 10 million, so senior investors lose 15 − 10 = 5 million. 15 assumes no first-loss protection; 0 would hold only for losses up to 10 million; 1.5 applies a percentage wrongly.

Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation

9 · Transition plans and their credibility · medium

Why is policy lobbying assessed when judging a company's transition plan?

  1. Lobbying expenses are counted as scope 1 emissions under the GHG Protocol
  2. Lobbying determines the company's EU Taxonomy alignment percentage
  3. Lobbying is required by the SBTi for every company setting a target
  4. Anti-climate lobbying undermines the goals the plan claims to support
Answer and working

D. Anti-climate lobbying undermines the goals the plan claims to support

Inconsistent lobbying signals that the company does not support the policy environment its plan relies on. Lobbying is not an emissions scope, not an SBTi requirement and not a taxonomy KPI.

Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation

10 · Transition plans and their credibility · easy

Under the SBTi net-zero approach, what is the typical long-term emissions reduction expected by 2050?

  1. About 50 per cent, with no requirement on residual emissions
  2. About 90 per cent, with residual emissions neutralised by removals
  3. 100 per cent, with no residual emissions permitted at all
  4. About 25 per cent, with the rest offset by avoided-emission credits
Answer and working

B. About 90 per cent, with residual emissions neutralised by removals

SBTi long-term targets require deep cuts, around 90% for most sectors, with permanent removals to neutralise the residual. Avoided-emission credits do not count, and some residual is allowed.

Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation

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Read the subject

Climate Finance, Climate Risk & Sustainable InvestmentThe full study manual, free GARP Sustainability and Climate Risk CertificateFormat, sections and how it has changed

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