GARP SCR Certificate: Climate Risk for Portfolios - Asset Allocation and Risk Measurement
- Kateryna Myrko
- 14 hours ago
- 5 min read
Portfolio climate risk work in the Global Association of Risk Professionals (GARP) Sustainability and Climate Risk (SCR) curriculum is deliberately practical: you’re expected to connect climate drivers → financial transmission channels → portfolio exposures → measurable metrics → risk decisions. GARP’s required reading list makes that explicit by specifying calculation- and interpretation-based learning objectives for “Climate Risk Measurement and Management,” including carbon metrics and exposure measures.
This exam guide focuses on portfolios—how climate risk changes asset allocation decisions and how to quantify that risk using commonly tested measurement frameworks.
1) The learning objectives you’re expected to master (portfolio lens)
GARP’s SCR required readings page states that, for “Climate Risk Measurement and Management,” candidates should be able to:
Evaluate pros/cons of common carbon footprint and exposure metrics, and
Calculate key measures such as weighted average carbon intensity (WACI), total carbon emissions, and carbon footprint given inputs.
In addition, the GARP-assigned reading “Risk Management Fundamentals” emphasizes understanding risk types and the methodologies behind common risk measurement techniques—the foundation for translating climate risk into market, credit, liquidity, and operational risk in portfolio contexts.
Finally, the SCR reading from the Task Force on Climate-related Financial Disclosures (TCFD) provides a “financial sector” lens—including guidance for asset owners/managers, scenario-based resilience, and a dedicated section on carbon footprinting and exposure metrics.
Those objectives imply a core exam pattern: you’ll be given portfolio/issuer data and asked to (a) compute a metric, (b) interpret what it means, (c) choose the most appropriate risk response, or (d) explain limitations and governance implications.
2) Climate risk in portfolios: the two-channel model you should default to GARP SCR Certificate
The SCR framework (consistent with TCFD) treats climate risk as financial risk through two primary channels: GARP SCR Certificate
Physical risk: impacts from acute and chronic climate hazards affecting cash flows, collateral values, insurance losses, sovereign balance sheets, and supply chains.
Transition risk: impacts from policy, technology shifts, market repricing, and changes in consumer preference that alter profitability and discount rates—often abruptly when expectations change.
Portfolio translation: physical risk tends to surface as location/asset-level sensitivity (real assets, infrastructure, mortgages, sovereigns), while transition risk often shows up as sector/technology sensitivity (energy, utilities, heavy industry, autos) and as risk-premium repricing across equity and credit.
3) Risk measurement toolkit: what’s most testable (and how to interpret it)
A) Carbon footprinting and exposure metrics (high-frequency SCR territory)
The SCR learning objectives explicitly call out WACI, total emissions, and carbon footprint. These appear because they are computable, comparable, and naturally lead to interpretation questions.
What these measures do well (and what exam questions often probe):
WACI: useful for comparing portfolio carbon intensity across portfolios/benchmarks; relatively straightforward to compute from weights and issuer intensity inputs.
Total emissions / carbon footprint: useful for “financed emissions” style exposure discussions and tracking absolute exposure levels; can be sensitive to portfolio size and methodology assumptions.
Exposure metrics (e.g., concentration in carbon-related assets/sectors): useful for identifying where transition shocks could hit first; widely used in disclosure and risk frameworks.
Common exam trap: treating a single metric as “the truth.” TCFD’s guidance and the SCR objectives push you to understand advantages and disadvantages—i.e., what a metric captures and what it misses.
B) Scenario-based analysis (where measurement becomes decision-useful)
Risk metrics become portfolio tools when they can be stressed under alternative futures. The Network for Greening the Financial System (NGFS) highlights climate scenario analysis as a way to size risks using “data-driven scenarios” encompassing plausible future states. TCFD also emphasizes assessing resilience under different climate-related scenarios and linking that to strategy and risk management.
Exam-relevant interpretation: scenario analysis is less about a single forecast and more about mapping how shocks transmit into:
earnings/cash flows,
discount rates/spreads,
defaults/downgrades,
liquidity and correlations.
C) “Financial-risk framing” (turn climate into market/credit language)
The GARP “Risk Management Fundamentals” reading frames risk measurement in standard financial terms (credit, market, liquidity, operational) and expects you to understand common measurement methodologies. In portfolio vignettes, this typically becomes:
Market risk: repricing from transition news, carbon price shocks, technology disruption
Credit risk: downgrade/default migration in exposed sectors or regions
Liquidity risk: gap risk in stressed markets / concentrated “brown” assets
Operational risk: model/data risk, governance failures, disclosure controls
4) Asset allocation: how climate risk changes portfolio construction
A portfolio-aware climate process usually follows five steps:
Step 1 — Define the climate objective and constraint set
Your “objective” might be risk reduction (tracking error control), regulatory alignment, or net-zero trajectory. TCFD’s structure is helpful: governance, strategy, risk management, and metrics/targets—because it forces clarity on why you measure and how you act on results.
Step 2 — Establish a baseline (portfolio + benchmark)
Compute baseline WACI/footprint/exposures and compare to benchmark. This sets the “starting point” and identifies where active decisions will concentrate.
Step 3 — Decide where climate risk belongs: strategic vs tactical tilts
Strategic asset allocation (SAA): long-horizon allocations where climate risk is a structural driver (e.g., real assets, long-duration credit, sovereign exposure).
Tactical overlays: shorter-horizon tilts/hedges responding to transition pathways, policy shifts, or repricing risk.
NGFS explicitly flags the need to integrate sustainability factors into portfolio management and to bridge data gaps—both are practical constraints you should mention when justifying portfolio choices.
Step 4 — Allocate a climate risk budget
Even if the SCR curriculum doesn’t demand one “official” budgeting formula, it repeatedly pushes you toward measurement → limits → governance logic. In practice, a climate risk budget can be expressed as:
maximum sector/issuer exposure to high-transition-risk assets,
maximum portfolio WACI vs benchmark,
scenario loss limits under defined climate pathways.
Your answer choices in exam-style questions often reward the option that ties the limit to a measurable metric and includes monitoring/escalation.
Step 5 — Monitor and report with metric discipline
TCFD emphasizes decision-useful metrics and targets, and the SCR objectives require you to interpret metric limitations—so monitoring isn’t just “report a number,” it’s “report a number with method transparency and caveats.”
5) How this topic is tested on the SCR exam
GARP describes the SCR exam as 80 multiple-choice questions plus a multi-part case study, completed in 4 hours, graded pass/fail. For portfolios, “asset allocation and risk measurement” questions typically look like:
Calculate WACI / total emissions / footprint from a table of holdings and issuer data (then interpret).
Choose the best metric for a stated objective (benchmark comparability vs absolute exposure vs transition sensitivity), explaining trade-offs.
Link a scenario shock to market/credit impacts and pick a portfolio action consistent with governance and risk controls.
Identify the most defensible way to communicate results under a disclosure framework (clear metrics/targets, scenario framing, limitations).
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