Climate change is one of the most pressing challenges of our time, with far-reaching consequences for economies, financial markets, and risk management. For candidates preparing for the GARP Sustainability and Climate Risk (SCR) Certification, understanding the scientific foundations of climate change is crucial. The SCR exam evaluates candidates on the latest climate risk science, greenhouse gas dynamics, and the impact of climate change on financial and corporate decision-making.
This article provides an in-depth exploration of the key climate science concepts covered in the GARP SCR certification, including the greenhouse effect, human impact on climate, and projected climate change risks.
1. Understanding the Greenhouse Effect
The Earth's climate is determined by a delicate balance between incoming solar radiation and outgoing infrared radiation. This balance is regulated by greenhouse gases (GHGs), which trap heat in the atmosphere. Without these gases, the Earth’s average temperature would be approximately -18°C, making life impossible. However, increased levels of GHGs are intensifying this natural effect, leading to global
warming. GARP SCR Candidates , Climate Change
Key Greenhouse Gases and Their Impact GARP SCR Candidates , Climate Change
The major greenhouse gases contributing to climate change include:
Carbon Dioxide (CO₂): The most significant human-generated GHG, with a long atmospheric lifetime and a direct link to fossil fuel combustion.
Methane (CH₄): A potent GHG with a global warming potential (GWP) 28 times higher than CO₂ over a 100-year period.
Nitrous Oxide (N₂O): Released primarily from agricultural activities, it has a GWP 273 times that of CO₂.
Halocarbons: Industrial gases with extremely high GWP, although present in smaller quantities.
Water vapor also plays a role in warming but is considered a feedback mechanism rather than a primary driver.
2. How Human Activities Are Changing the Climate
Since the Industrial Revolution, human activities have dramatically increased the concentration of GHGs in the atmosphere. The Keeling Curve, which tracks atmospheric CO₂ levels, shows a steady rise from 280 parts per million (ppm) in pre-industrial times to over 417 ppm in recent years.
The Role of Fossil Fuels
The combustion of coal, oil, and natural gas accounts for about 75% of global CO₂ emissions. Deforestation further amplifies the problem by reducing the number of trees that absorb CO₂.
Evidence of Human Influence
Multiple lines of evidence confirm human-driven climate change:
Rising Global Temperatures: The planet has warmed by approximately 1.2°C since the late 19th century.
Melting Polar Ice Caps: Arctic sea ice is declining at an alarming rate.
Rising Sea Levels: The global mean sea level has risen by approximately 20 cm since 1900, primarily due to thermal expansion and glacier melt.
These trends align with predictions from climate models, confirming the role of human activities.
3. The Impacts of Climate Change on Financial Risk Management
Physical Risks
Physical risks stem from direct climate-related hazards, such as:
Extreme Weather Events: More frequent hurricanes, heatwaves, and floods are disrupting businesses and economies.
Sea-Level Rise: Coastal cities and assets are increasingly vulnerable.
Agricultural Disruptions: Changes in precipitation patterns threaten global food security.
Transition Risks
Transition risks arise from the shift toward a low-carbon economy. Companies face financial risks due to:
Regulatory Changes: Governments worldwide are implementing carbon pricing and emissions reduction mandates.
Market Shifts: Investor demand for ESG-compliant assets is reshaping capital markets.
Technology Disruptions: The rise of renewable energy and electric vehicles is rendering fossil-fuel-dependent industries obsolete.
For risk professionals, understanding these challenges is essential for managing sustainability risks.
4. Climate Risk Scenarios: What the Future Holds
To project future climate conditions, scientists use Shared Socioeconomic Pathways (SSPs), which model different emissions scenarios:
SSP1 (Sustainability): A world focused on sustainability, leading to a temperature rise of ~2°C by 2100.
SSP2 (Middle of the Road): Moderate climate action results in a temperature rise of ~3°C.
SSP5 (Fossil-Fueled Development): High fossil fuel use leads to a catastrophic 5.5°C increase.
Risk managers must evaluate how these scenarios impact investment portfolios, supply chains, and corporate strategies.
5. The Role of Climate Modeling in Risk Assessment
Climate models help financial professionals quantify and mitigate climate risks. Global Climate Models (GCMs) predict how temperatures, precipitation, and extreme weather patterns will evolve under different emissions scenarios.
Scenario Analysis in Risk Management
Financial institutions are now using stress testing and scenario analysis to assess their exposure to climate risks. The Task Force on Climate-related Financial Disclosures (TCFD) framework encourages organizations to disclose their climate-related risks using structured methodologies.
For example, a bank may assess the impact of a 3°C warming scenario on its real estate mortgage portfolio, considering rising flood risks.
6. Preparing for the GARP SCR Exam: Key Takeaways
To excel in the GARP SCR exam, candidates must:
Master Climate Science: Understand how GHGs impact global warming.
Analyze Risk Categories: Differentiate between physical, transition, and liability risks.
Stay Updated on Regulations: Familiarize themselves with Paris Agreement goals, carbon pricing mechanisms, and ESG frameworks.
Practice Scenario Analysis: Learn to assess risks under different climate pathways.
Given the growing demand for sustainability expertise, the SCR certification is a valuable credential for financial and risk professionals.
Understanding climate science is foundational for effective risk management in a world increasingly shaped by climate change. As financial institutions, corporations, and regulators intensify their focus on sustainability, SCR-certified professionals will play a crucial role in navigating these challenges.
Candidates preparing for the GARP SCR exam should focus on mastering the latest climate science, risk assessment methodologies, and regulatory frameworks. With diligent preparation, passing the SCR exam is not only achievable but also a significant career milestone.
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