GARP SCR Cheat Sheet: Climate Scenarios, Risk Types, Regulations, and Key Models

Kateryna Myrko
6 minutes ago
4 min read

Sustainability & Climate Risk (SCR) sits at the intersection of climate science, financial risk transmission, and the policy frameworks that are reshaping capital allocation. This cheat sheet distills the high-yield concepts you need to recall quickly—definitions, scenario logic, risk taxonomies, regulatory architecture, and the core analytical models used in practice. GARP SCR Cheat Sheet

GARP SCR 2026 Cheat Sheet

1) Climate science essentials you’re expected to “know cold”

Weather vs. climate

Weather is short-term atmospheric conditions at a time/place (temperature, precipitation, wind).
Climate is the long-run average pattern of weather (typically 30+ years).
Climate change is a multi-decade shift in the statistical properties of the climate system (temperature, precipitation, sea level, etc.), with recent warming primarily driven by anthropogenic greenhouse gas (GHG) emissions.

Observed macro-trends

Global average surface temperature has risen ~1.2°C since the late 19th century.
Arctic sea ice extent (especially September minimum) has declined; glacier mass is decreasing; oceans absorb the vast majority of excess heat; sea levels are rising via thermal expansion and land-ice melt.

GHGs, aerosols, and why “GWP + lifetime” matters

CO₂: baseline GWP=1, very long lifetime (~centuries), dominant contributor due to volume.
CH₄: higher GWP (~29) with shorter lifetime (~11.8 years)—high near-term warming leverage.
N₂O: very high GWP (~273) and long lifetime (~109 years).
Halocarbons: very high GWP (100s–1000s), lifetime from years to millennia.
Aerosols: often net cooling via reflection (e.g., sulfates), but black carbon warms via absorption.

Mechanisms

The climate system is governed by Earth’s energy balance; GHGs intensify the greenhouse effect and create positive radiative forcing. Aerosols can create negative radiative forcing (cooling), but do not offset GHG warming one-for-one.

2) Climate scenarios and carbon budgets: how to think like a risk analyst

Carbon budgets (anchor numbers)

Remaining carbon budget (from ~2020) for a 50% chance of limiting warming to 1.5°C: ~500 GtCO₂.
For 2°C: ~1150 GtCO₂.These budgets translate into emissions trajectories—the pathways that matter for scenario analysis and stress testing.

Trajectory logic

1.5°C-aligned pathways require rapid, deep emissions cuts and global net-zero around 2050.
2°C-aligned pathways generally allow a slower decline, with net-zero around 2070.

Scenario families you should be able to describe

IPCC-style pathways: multiple routes consistent with temperature goals, varying assumptions about technology, policy, and socioeconomic development.
IEA-style pathways: energy-sector-centered roadmaps for net-zero, emphasizing power, industry, transport, and fuel switching.

How scenarios become financial variables

Scenarios are not “forecasts.” They are structured if–then narratives that map to:
- policy stringency (carbon price, emissions limits),
- technology diffusion (renewables, electrification, CCS),
- demand shifts (consumer preference, product substitution),
- and physical hazard intensity/frequency over time.

3) Risk types: the SCR taxonomy that drives everything else

Physical risk

Acute hazards: sudden extremes (floods, hurricanes, wildfires, heatwaves).
Chronic hazards: slow-moving trends (sea level rise, rising average temperatures, changing precipitation).

Transition risk

Policy/legal (carbon taxes, emissions rules, litigation),
Technology (asset obsolescence; stranded capex),
Market (demand shifts toward low-carbon),
Reputational (brand value, cost of capital).

Risk propagation model: hazards/drivers × exposure × vulnerability

Hazard/driver: the climate event or transition shock.
Exposure: assets/operations “in harm’s way” (coastal real estate; carbon-intensive plants).
Vulnerability: susceptibility given resilience/adaptive capacity (flood defenses, redundancy, insurance terms).High hazard + high exposure + high vulnerability = material risk.

Direct vs. indirect (cascading) risk

Direct: physical damage, disruption, compliance costs.
Indirect: supply chain failures, liability, macro spillovers, health impacts, financial stability feedback loops.

Stranded assets (including human capital)

Stranding is premature write-down/devaluation due to climate-driven market/regulatory change.
Sectors: fossil fuels and related infrastructure, high-risk real estate, ICE vehicle ecosystems, heavy industry.
Human capital can strand when skills become obsolete in high-emissions sectors—driving “just transition” considerations (retraining, relocation support).

4) Key models and analytical building blocks

Hazard models & uncertainty disciplines

Climate risk modeling must distinguish:
- Uncertainty (range of possible outcomes; scenario spread),
- Variability (natural fluctuations like ENSO),
- Accuracy (fit to observed outcomes—often stronger at global temperature trends than local precipitation/extremes).
Common data challenges: limited high-resolution coverage, inconsistent historical records, granularity gaps, and integration across sources (satellite + ground).

Stress testing

Central banks and supervisors incorporate climate risk through:
- climate risk assessments,
- climate stress tests under scenarios,
- supervisory expectations for governance, methods, and disclosure,
- and coordination through international networks.

Life-Cycle Assessment (LCA)

Four steps: goal/scope → inventory → impact assessment → interpretation.
Used to identify “hot spots,” improve product design, and strengthen credible reporting.

5) Regulations, reporting architecture, and market guardrails

International climate policy timeline

1992 UNFCCC → 1997 Kyoto (binding targets for developed economies; mechanisms like emissions trading/CDM) → 2009 Copenhagen (voluntary pledges) → 2015 Paris (NDCs, five-year “ratchet,” net-zero ambition in the second half of the century).

Scope 3 emissions: why it’s hard

Data collection across value chains, double counting, lack of standardization, limited control over counterparties, and reliance on estimates—making measurement resource-intensive.

Sustainable finance policy tools

Private-sector: ESG integration, green bonds, sustainable funds, impact investing.
Public-sector: incentives/subsidies, mandatory disclosure, public–private partnerships, and green taxonomies.

Green taxonomies

Purpose: classify sustainable activities, improve comparability, guide capital, reduce greenwashing risk.
Challenges: complexity, evolving science/technology, inconsistent cross-jurisdiction enforcement, and monitoring/verification requirements.

Greenwashing typology

Know the playbook: decoupling, attention deflection, greencrowding, greenlighting, greenshifting, greenlabelling, greenrinsing, and greenhushing—plus “greenwishing” (well-intended but ineffective actions).