The GARP Sustainability and Climate Risk (SCR) certification is one of the most sought-after credentials for professionals in risk management, finance, and ESG investing. With climate-related financial risks becoming a top priority for regulators and businesses, mastering the complex concepts of the GARP SCR exam is crucial for staying ahead in the industry.
Preparing for the SCR exam requires more than just reading study materials—you need to apply your knowledge through high-quality, exam-level practice questions.
1. Climate Science and Attribution of Modern Warming
Which of the following statements most accurately reflects why modern climate models are confident that human activities are responsible for observed warming?
A) Climate models that exclude greenhouse gas emissions from fossil fuel combustion still accurately reproduce recent warming trends.
B) The Sun’s energy output has increased substantially in the last 50 years, leading to unavoidable natural warming.
C) Greenhouse gas emissions from human activities align precisely with observed temperature increases and climate feedback mechanisms.
D) Ice core data shows that CO₂ levels in the atmosphere have naturally fluctuated in the past, proving that today’s levels are within normal variability.
2. ESG and Corporate Sustainability Practices
A financial institution wants to claim ESG leadership but continues to finance coal mining while publicly promoting renewable energy projects. What form of greenwashing is this?
A) Greenrinsing
B) Greenlighting
C) Greenwashing by omission
D) Greencrowding Free GARP SCR 2025 Practice Questions , GARP SCR 2025, GARP SCR
3. Physical and Transition Risks Free GARP SCR 2025 Practice Questions , GARP SCR 2025, GARP SCR
Which hidden risk is most commonly overlooked when companies assess physical and transition risks related to climate change?
A) Supply chain vulnerabilities that amplify both physical and transition risks in interconnected markets.
B) The potential for carbon offsets to become more expensive due to increasing global demand.
C) The assumption that physical risk exposure will remain consistent across asset classes.
D) The belief that regulatory policies will uniformly evolve across jurisdictions, creating equal risk exposure.
4. Sustainable Development and Global Climate Policy
Why do Shared Socioeconomic Pathways (SSPs) provide a more comprehensive climate projection framework compared to earlier models?
A) They incorporate economic, social, and technological trends into emissions scenarios, unlike earlier models that focused solely on greenhouse gas projections.
B) They assume that historical climate variability is a better predictor of future warming than emissions.
C) They project fixed climate outcomes regardless of mitigation policies.
D) They rely only on physical climate factors, excluding human policy responses.
5. Stranded Assets and Financial Risk
Which of the following represents a systemic stranded asset risk rather than an idiosyncratic risk?
A) A coal-fired power plant shutting down prematurely due to local government restrictions.
B) A global policy shift that renders all fossil fuel infrastructure obsolete at an accelerated rate.
C) A single oil company’s stock value plummeting after an activist campaign forces regulatory intervention.
D) A carbon-intensive manufacturing plant suffering financial losses due to unexpected tax hikes.
6. Financial Institutions and Climate Risk Measurement
What is the greatest challenge when financial institutions attempt to incorporate climate risk into their stress testing frameworks?
A) The lack of standardized methodologies to quantify long-term climate impacts on credit risk.
B) The inability of financial models to account for short-term variations in market conditions.
C) The assumption that historical data is more relevant than forward-looking climate scenarios.
D) The overreliance on internal risk assessments instead of regulatory climate disclosures.
7. Climate Scenario Analysis and Transition Planning
Which of the following factors is most likely to cause a discrepancy between a firm’s internal climate risk assessment and real-world risk exposure?
A) Overestimation of technology advancements in carbon capture within Net Zero pathways.
B) Underestimation of the economic costs of implementing a carbon tax.
C) A miscalculation of stranded asset depreciation rates in financial stress tests.
D) A failure to account for demand destruction in high-emission industries due to sudden regulatory shifts.
8. Green and Sustainable Finance
Why might a company fail to meet its Sustainability-Linked Bond (SLB) targets despite having an aggressive sustainability strategy?
A) The targets were set based on regulatory expectations rather than achievable business transformations.
B) Sustainability-linked metrics are structured in a way that rewards short-term gains over long-term progress.
C) The financial incentive for meeting SLB targets is too small compared to the operational cost of compliance.
D) There are no penalties associated with missing SLB targets, making them voluntary rather than binding.
9. Enterprise Risk Management (ERM) and Climate Disclosures
Why is Scope 3 emissions reporting particularly challenging for financial institutions?
A) Unlike Scope 1 and 2, Scope 3 emissions are calculated using estimates from external entities rather than directly measurable data.
B) Financial institutions are not legally required to report Scope 3 emissions under any global frameworks.
C) Scope 3 emissions do not contribute significantly to overall carbon footprints, making them less relevant.
D) Most companies do not engage in activities that generate indirect emissions, making Scope 3 tracking unnecessary.
10. Climate Risk Assessment and Stress Testing
Which of the following stress test parameters is most prone to underestimating a financial institution’s climate risk exposure?
A) A scenario assuming that carbon pricing will remain constant across all economic sectors.
B) A model that includes physical risk projections but excludes transition risk factors.
C) A financial stress test that uses historical market responses rather than forward-looking climate policies.
D) A simulation that focuses only on direct asset impairment while ignoring second-order economic effects.
11. Emissions Attribution Factor Calculation
A financial institution partially finances a company’s operations. The company has total equity and debt of $500 million and has been allocated $50 million in financing from the institution.
If the company’s total annual emissions are 200,000 metric tons of CO₂e, how much of these emissions should be attributed to the financial institution?
A) 10,000 metric tons
B) 15,000 metric tons
C) 20,000 metric tons
D) 25,000 metric tons
12. Emissions Calculation Using Global Warming Potential (GWP)
A manufacturing company reports methane (CH₄) emissions of 8,000 metric tons. Given that methane has a GWP of 28, what is the company’s total emissions in CO₂e?
A) 112,000 metric tons
B) 224,000 metric tons
C) 336,000 metric tons
D) 448,000 metric tons
1. Climate Science and Attribution of Modern Warming
✅ Correct Answer: C – Greenhouse gas emissions from human activities align precisely with observed temperature increases and climate feedback mechanisms.
📖 Explanation:Scientific consensus, supported by climate models and observational data, confirms that modern global warming is primarily caused by anthropogenic (human-caused) greenhouse gas emissions.
Climate models that exclude human activities fail to replicate the observed warming, whereas those that incorporate human emissions closely match real-world data (GARP SCR, Chapter 1).
The IPCC's Sixth Assessment Report states that human influence has unequivocally warmed the atmosphere, ocean, and land.
The Sun's output (B) has not significantly increased in the last century (NASA, NOAA studies).
Historical ice core data (D) shows natural fluctuations, but today’s CO₂ levels (~417 ppm) exceed any point in the last 800,000 years and are increasing at an unprecedented rate due to fossil fuel combustion.
Thus, only the inclusion of human emissions in models can reproduce observed warming, making C the correct answer.
2. ESG and Corporate Sustainability Practices
✅ Correct Answer: B – Greenlighting (highlighting minor green efforts while ignoring major unsustainable activities).
📖 Explanation:Greenlighting is a form of corporate greenwashing where a company emphasizes small-scale ESG initiatives while continuing harmful environmental practices.
According to the GARP SCR Study Notes (Chapter 2), greenlighting is a misleading tactic where a company presents token sustainability projects (e.g., renewable energy investments) while ignoring or downplaying major negative environmental impacts, such as coal mining or deforestation.
Greenrinsing (A) involves constantly changing ESG targets to avoid accountability.
Greenwashing by omission (C) means hiding unsustainable practices altogether, whereas greenlighting still advertises selective ESG efforts.
Greencrowding (D) is when a company hides among competitors to avoid ESG scrutiny.
The correct answer is B because the company highlights renewable energy projects to create a positive image while continuing to finance coal mining.
3. Physical and Transition Risks
✅ Correct Answer: A – Supply chain vulnerabilities that amplify both physical and transition risks in interconnected markets.
📖 Explanation:Supply chain disruptions are often underestimated in climate risk assessments, yet they magnify both physical and transition risks (GARP SCR, Chapter 3).
Physical risks (e.g., extreme weather, flooding, heatwaves) can damage critical supply chain infrastructure, leading to delays, shortages, and financial losses.
Transition risks (e.g., carbon taxes, regulatory changes) can impact suppliers, increasing costs for companies reliant on high-emission industries.
Example: An automotive manufacturer relying on rare earth metals from a country with strict emissions policies could face supply chain disruptions, affecting production.
Option B (carbon offsets) is valid but not the most overlooked risk compared to supply chains.
Option C (asset exposure remains consistent) is incorrect because climate risks evolve over time.
Option D (regulatory uniformity) is false because different jurisdictions impose different climate policies, leading to fragmented risk exposure.
Thus, A is correct because supply chain risks amplify both physical and transition risks, making them high-impact but often overlooked.
4. Sustainable Development and Global Climate Policy
✅ Correct Answer: A – SSPs incorporate economic, social, and technological trends into emissions scenarios.
📖 Explanation:Shared Socioeconomic Pathways (SSPs) provide a more holistic climate projection framework than earlier models by integrating socioeconomic and technological developments (GARP SCR, Chapter 4).
Earlier models only projected greenhouse gas emissions but ignored how economic development, technology, and policy changes shape emissions.
SSPs integrate multiple variables, including:
Economic growth rates
Technological advancements (e.g., renewable energy adoption)
Social factors (e.g., population growth, urbanization, policy interventions)
SSPs create different future scenarios, such as:
SSP1 (Sustainability Focus) – Rapid decarbonization, strong climate action.
SSP5 (Fossil-Fuel Reliance) – High emissions, continued fossil fuel use.
Option B (historical variability) is incorrect because past trends do not determine future outcomes.
Option C (fixed climate outcomes) is false because SSPs do not assume a predetermined path.
Option D (only physical factors) is incorrect because SSPs explicitly incorporate human responses.
Thus, A is correct because SSPs expand upon earlier models by integrating economic, technological, and policy factors into climate projections.
5. Stranded Assets and Financial Risk
✅ Correct Answer: B – A global policy shift that renders all fossil fuel infrastructure obsolete at an accelerated rate.
📖 Explanation:Stranded assets are assets that lose value due to market, regulatory, or environmental shifts (GARP SCR, Chapter 5).
Systemic stranded asset risks affect entire industries, while idiosyncratic risks affect individual firms.
A global policy shift (B) (e.g., carbon pricing, net-zero mandates) would simultaneously devalue all fossil fuel assets, creating systemic risk.
Option A (coal plant closure) is an idiosyncratic risk, as it affects one facility, not the whole industry.
Option C (activist campaign) is firm-specific, not systemic.
Option D (local tax increase) is not a broad systemic risk.
Thus, B is correct because a global policy shift impacts all fossil fuel infrastructure, making it a systemic stranded asset risk.
6. Financial Institutions and Climate Risk Measurement
✅ Correct Answer: A – The lack of standardized methodologies to quantify long-term climate impacts on credit risk.
📖 Explanation:One of the biggest challenges for financial institutions when incorporating climate risk into stress testing frameworks is the lack of standardized methodologies (GARP SCR, Chapter 6).
Climate risk is fundamentally different from traditional financial risks (credit, market, liquidity risk) because:
It involves long-term, nonlinear impacts.
It is highly uncertain, dependent on policy shifts, technology adoption, and global temperature outcomes.
Financial institutions lack historical data to model climate impacts accurately.
Why other options are incorrect:
B (Short-term variations in market conditions) – Short-term fluctuations matter less than long-term systemic risks in climate risk modeling.
C (Historical data over forward-looking analysis) – Many institutions already acknowledge that past data is insufficient for climate stress testing.
D (Internal risk assessments vs. regulatory disclosures) – Regulatory alignment is an issue, but it is secondary to the absence of standardized modeling frameworks.
Thus, A is correct because the biggest obstacle is the lack of standardized climate risk quantification models, leading to inconsistent stress test results across institutions.
7. Climate Scenario Analysis and Transition Planning
✅ Correct Answer: D – A failure to account for demand destruction in high-emission industries due to sudden regulatory shifts.
📖 Explanation:Many companies underestimate the risk of sudden demand destruction when conducting internal climate risk assessments (GARP SCR, Chapter 7).
Regulatory changes (e.g., carbon pricing, fossil fuel bans, ESG mandates) can suddenly reduce demand for high-carbon products like:
Coal
Gasoline-powered vehicles
Heavy-emitting industrial processes
Why other options are incorrect:
A (Overestimation of carbon capture technology) – This is a common mistake, but demand destruction is a more direct risk to financial stability.
B (Economic costs of carbon taxes) – These are factored into economic models, whereas demand destruction is often underestimated.
C (Stranded asset depreciation rates) – Important, but companies at least attempt to model asset depreciation, while demand shocks are often ignored entirely.
Thus, D is correct because sudden demand destruction due to regulatory policies is a critical blind spot in scenario analysis and transition planning.
8. Green and Sustainable Finance
✅ Correct Answer: A – The targets were set based on regulatory expectations rather than achievable business transformations.
📖 Explanation:Many firms fail to meet their Sustainability-Linked Bond (SLB) targets because they set unrealistic or externally driven goals instead of aligning them with feasible operational changes (GARP SCR, Chapter 8).
SLBs require companies to meet ESG-related targets (e.g., emission reductions, renewable energy adoption).
Why SLB targets fail:
Regulatory pressures push firms to set aggressive ESG goals to access cheaper financing, but they often lack the internal capabilities to meet them.
If goals are unrealistic, the firm may default on SLB terms, increasing borrowing costs.
Why other options are incorrect:
B (Short-term over long-term rewards) – Many SLBs are designed for long-term impact, so this isn’t the biggest issue.
C (Financial incentives are too small) – Financial incentives can be significant, but feasibility is a bigger issue.
D (SLB targets are voluntary, not binding) – Incorrect; SLBs do impose penalties for missing sustainability goals.
Thus, A is correct because the main reason companies fail is unrealistic, externally driven SLB targets.
9. Enterprise Risk Management (ERM) and Climate Disclosures
✅ Correct Answer: A – Unlike Scope 1 and 2, Scope 3 emissions are calculated using estimates from external entities rather than directly measurable data.
📖 Explanation:Scope 3 emissions reporting is challenging for financial institutions because it relies on indirect emissions estimates from supply chains, customers, and investments (GARP SCR, Chapter 9).
Scope 1 emissions = Direct emissions from owned/controlled sources (e.g., factory emissions).
Scope 2 emissions = Indirect emissions from energy purchases (e.g., electricity consumption).
Scope 3 emissions = All other indirect emissions (e.g., financed emissions, supply chain emissions).
These depend on external data from suppliers, borrowers, and investees.
Financial institutions must estimate emissions for all companies they finance, making accuracy difficult.
Why other options are incorrect:
B (Not legally required) – Scope 3 reporting is becoming mandatory in many jurisdictions (e.g., EU, SEC proposals).
C (Scope 3 doesn’t significantly contribute to emissions) – False, Scope 3 often represents the majority of emissions in financial institutions.
D (Most companies don’t generate indirect emissions) – False, almost all firms have Scope 3 emissions from supply chains, transportation, and end-user product usage.
Thus, A is correct because the biggest challenge is estimating Scope 3 emissions using data from external entities.
10. Climate Risk Assessment and Stress Testing
✅ Correct Answer: D – A simulation that focuses only on direct asset impairment while ignoring second-order economic effects.
📖 Explanation:Many climate stress tests underestimate risk by focusing only on direct financial losses (e.g., asset impairments) while ignoring second-order effects (GARP SCR, Chapter 10).
First-order effects = Direct financial impacts from climate change (e.g., physical damage, stranded assets).
Second-order effects = Indirect macroeconomic disruptions, including:
Supply chain disruptions
Market-wide devaluations
Inflationary pressures from resource scarcity
Systemic risk to global financial markets
Why other options are incorrect:
A (Assuming carbon pricing remains constant across sectors) – An issue, but it doesn’t systematically underestimate financial risk.
B (Including physical but excluding transition risks) – This matters, but exclusion of second-order effects is a bigger blind spot.
C (Using historical market responses instead of forward-looking models) – A problem, but not as severe as failing to model second-order effects.
Thus, D is correct because stress tests that ignore second-order economic disruptions provide incomplete risk assessments.
11. Emissions Attribution Factor Calculation
✅ Correct Answer: C – 20,000 metric tons CO₂e
📖 Explanation:To calculate the financial institution’s attributed emissions, we use the Attribution Factor formula.
Attribution Factor=Outstanding Amount/(Total Equity+Debt)
Attributed Emissions=Attribution Factor×Total Emissions
Attribution Factor=500,000,000/50,000,000=0.10
Attributed Emissions=0.10×200,000=20,000 metric tons CO₂e
12. Emissions Calculation Using Global Warming Potential (GWP)
✅ Correct Answer: B – 224,000 metric tons CO₂e
📖 Explanation:To calculate emissions in CO₂ equivalent (CO₂e).
Emissions in CO₂e=Emissions×GWP=8,000×28=8,000x28=8,000×28=224,000 metric tons CO₂e
=224,000 metric tons CO₂e
Thus, the correct answer is B (224,000 metric tons CO₂e).
If you're looking for more practice questions and study resources to boost your chances of passing the GARP Sustainability and Climate Change 2025 exam, check out our comprehensive study materials below!
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