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ICAEW ACA Sustainability and Ethics study materials
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ICAEW ACA Sustainability and Ethics practice questions

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Question 1Sustainability and climate change

Under the GHG Protocol Corporate Standard, which approach to setting organisational boundaries consolidates emissions from operations over which the company has operational control, regardless of ownership share?

  1. Operational control approach Correct answer.
  2. Territorial approach
  3. Equity share approach
  4. Financial control approach

Explanation

The GHG Protocol offers two consolidation approaches: equity share and control. Within the control approach, a company may choose either financial control or operational control; operational control consolidates 100% of emissions from sites where the company has authority to introduce operating policies.

Question 2Sustainability and climate change

A company reports Scope 2 emissions using the market-based method. Which input is most appropriate for that calculation?

  1. An estimate based on industry-average electricity intensity per unit of output
  2. The residual mix factor applied to all consumption regardless of contracts
  3. The national grid average emission factor published by the government
  4. Supplier-specific contractual instruments such as renewable energy certificates or guarantees of origin Correct answer.

Explanation

The Scope 2 Guidance requires the market-based method to reflect contractual instruments the reporting company holds, such as supplier-specific rates, RECs or guarantees of origin. The location-based method, by contrast, uses grid-average factors.

Question 3Sustainability and climate change

Which statement best describes the relationship between Scope 1 and Scope 3 emissions under the GHG Protocol?

  1. Scope 1 covers purchased electricity, while Scope 3 covers all fuel combustion
  2. Scope 1 and Scope 3 are both indirect and differ only in where the boundary is drawn
  3. Scope 3 covers only employee business travel and commuting
  4. Scope 1 covers direct emissions from owned or controlled sources, while Scope 3 covers indirect value chain emissions Correct answer.

Explanation

Scope 1 comprises direct emissions from sources owned or controlled by the company, such as combustion in owned boilers and vehicles. Scope 3 comprises all other indirect emissions that occur in the value chain, including purchased goods, transport, use of sold products and end-of-life treatment.

Question 4Sustainability and climate change

A manufacturer wants to reduce reported Scope 3 emissions attributable to its purchased steel. Which action most directly addresses that category under the GHG Protocol?

  1. Improving the fuel efficiency of its own delivery fleet
  2. Switching its own on-site boilers from coal to natural gas
  3. Purchasing steel with a lower embodied carbon intensity from a supplier using electric arc furnaces Correct answer.
  4. Installing rooftop solar to reduce purchased electricity

Explanation

Purchased goods and services is a Scope 3 category, so the lever is the embodied emissions of what is bought. Sourcing lower-carbon steel directly reduces the cradle-to-gate emissions associated with purchased goods.

Question 5Sustainability and climate change

Which of the following is the principal purpose of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations?

  1. To certify products as carbon neutral
  2. To set a global carbon price for large emitters
  3. To require audited carbon accounts in statutory financial statements
  4. To provide a framework for disclosing climate-related financial risks and opportunities to investors Correct answer.

Explanation

The TCFD recommendations provide a structure for disclosing governance, strategy, risk management, and metrics and targets relating to climate-related financial risks and opportunities. They are designed to support investor and lender decision-making rather than to set prices or certify products.

Question 6Sustainability and climate change

Under the TCFD recommendations, which pair of climate-related risks is explicitly distinguished?

  1. Credit risks and market risks
  2. Transition risks and physical risks Correct answer.
  3. Operational risks and compliance risks
  4. Reputational risks and liquidity risks

Explanation

The TCFD framework divides climate-related risk into physical risks, arising from acute and chronic climate hazards, and transition risks, arising from the shift to a lower-carbon economy including policy, technology, market and reputational elements.

Question 7Sustainability and climate change

A pension fund assesses which of its equity holdings are exposed to coastal flooding of key facilities. This analysis is best described as assessing which element of climate risk?

  1. Transition risk
  2. Reputational risk
  3. Liability risk arising from litigation
  4. Physical risk Correct answer.

Explanation

Exposure of assets to climate hazards such as flooding is a physical risk, which may be acute (event-driven) or chronic (longer-term shifts). Transition risk instead concerns the effects of moving to a lower-carbon economy.

Question 8Sustainability and climate change

Which scenario is most consistent with a 1.5°C pathway as used in climate scenario analysis?

  1. Emissions stabilising at today's levels indefinitely
  2. Net zero achieved by 2100 with unabated coal use continuing to 2070
  3. Emissions continuing to rise until 2050 before plateauing
  4. Global greenhouse gas emissions roughly halving by 2030 and reaching net zero around 2050 Correct answer.

Explanation

1.5°C-aligned pathways used in scenario analysis generally require deep near-term reductions of around 40-50% by 2030 against 2019 levels and global net zero CO2 emissions around 2050. Scenarios with continued or stabilised emissions imply much higher warming.

Question 9Sustainability and climate change

In climate scenario analysis, what is the main purpose of including a high-warming scenario alongside a transition-aligned scenario?

  1. To test resilience of the business model to divergent plausible futures Correct answer.
  2. To calculate the exact carbon price the company will pay
  3. To forecast the single most likely future
  4. To satisfy product labelling requirements

Explanation

Scenario analysis is not forecasting; it explores plausible futures to test strategic resilience. Running both a high-warming physical-risk scenario and a rapid-transition scenario reveals different vulnerabilities that a single central case would hide.

Question 10Sustainability and climate change

Which of the following best describes 'greenwashing' in a corporate sustainability context?

  1. Publishing a sustainability report that includes unfavourable data
  2. Investing only in companies with high environmental ratings
  3. Pricing carbon internally at a level above the market price
  4. Making misleading claims about the environmental attributes of a product, service or organisation Correct answer.

Explanation

Greenwashing involves conveying a misleading impression of environmental performance, for example through unsubstantiated claims or selective disclosure. Accurate disclosure of unfavourable information is the opposite of greenwashing.

Question 11Sustainability and climate change

A retailer advertises a garment as 'sustainable' with no supporting evidence or defined criteria. Which regulatory or assurance concern is most directly engaged?

  1. Unsubstantiated environmental marketing claims Correct answer.
  2. Transfer pricing rules
  3. Revenue recognition under IFRS 15
  4. Anti-money laundering obligations

Explanation

Environmental claims must be substantiated, specific and not overstated; vague terms such as 'sustainable' without evidence risk breaching consumer protection rules on green claims. The other options concern unrelated financial, tax or compliance regimes.

Question 12Sustainability and climate change

Which body issued the international standard IFRS S2, and what does it address?

  1. The International Labour Organization, addressing working conditions
  2. The Global Reporting Initiative, addressing waste reporting
  3. The Financial Action Task Force, addressing corruption
  4. The International Sustainability Standards Board, addressing climate-related disclosures Correct answer.

Explanation

IFRS S2 Climate-related Disclosures was issued by the International Sustainability Standards Board and requires disclosure of governance, strategy, risk management and metrics including Scope 1, 2 and 3 greenhouse gas emissions. It builds on the TCFD structure.

Question 13Sustainability and climate change

Under IFRS S2, a company must disclose greenhouse gas emissions in which way?

  1. Scope 1 and Scope 2 only, with Scope 3 prohibited
  2. Total emissions only, without disaggregation by scope
  3. Scope 1, Scope 2 and Scope 3, measured in accordance with the GHG Protocol Correct answer.
  4. Only Scope 1, because Scope 2 and 3 are voluntary

Explanation

IFRS S2 requires disclosure of Scope 1, 2 and 3 emissions measured using the GHG Protocol Corporate Standard, with Scope 3 required subject to relief provisions such as the one-year transitional relief. Disaggregation by scope is required.

Question 14Sustainability and climate change

A company's board delegates climate oversight to its audit committee and discloses this arrangement. Which TCFD pillar does this disclosure primarily address?

  1. Risk management
  2. Governance Correct answer.
  3. Metrics and targets
  4. Strategy

Explanation

The governance pillar asks companies to describe board oversight of climate-related risks and opportunities and management's role in assessing and managing them. Delegation of oversight to a named committee is a governance disclosure.

Question 15Sustainability and climate change

Which of the following is an example of a Scope 3 category under the GHG Protocol?

  1. Emissions from refrigerant leakage from equipment owned by the reporting company
  2. Emissions from the processing and use of products sold by the reporting company Correct answer.
  3. Emissions from fuel combusted in a boiler owned and operated by the reporting company
  4. Emissions from electricity purchased and consumed by the reporting company

Explanation

Use of sold products and processing of sold intermediate products are Scope 3 categories covering downstream value chain emissions. The other options are direct or energy-indirect emissions within the reporting company's own boundary.

Question 16Sustainability and climate change

A company sets an internal carbon price of $50 per tonne and applies it when appraising capital projects. What is the primary purpose of this practice?

  1. To comply with mandatory carbon tax filing
  2. To embed future carbon costs into investment decisions and steer capital towards lower-carbon options Correct answer.
  3. To calculate the company's Scope 3 emissions
  4. To offset all residual emissions to reach net zero

Explanation

An internal carbon price is a management tool that makes carbon costs explicit in decision-making, helping to test project economics against future policy and market risk. It is distinct from a government carbon tax and from offsetting.

Question 17Sustainability and climate change

Which statement correctly distinguishes a carbon tax from an emissions trading scheme?

  1. An emissions trading scheme applies only to households, while a carbon tax applies only to industry
  2. A carbon tax fixes the quantity of emissions while an emissions trading scheme fixes the price
  3. A carbon tax fixes the price per tonne of emissions while an emissions trading scheme caps the quantity and lets the price emerge from trading Correct answer.
  4. Both instruments fix the price and the quantity simultaneously

Explanation

A carbon tax sets a known price per tonne and leaves the quantity of emissions uncertain. A cap-and-trade scheme sets a quantity cap and allows allowance prices to be determined by the market. This is the classic price-versus-quantity distinction.

Question 18Sustainability and climate change

In the context of net zero commitments, what does 'offsetting' typically involve?

  1. Excluding Scope 3 emissions from the inventory
  2. Transferring emissions to a subsidiary outside the reporting boundary
  3. Reducing emissions within the company's own operations only
  4. Purchasing carbon credits representing emission reductions or removals elsewhere to compensate for residual emissions Correct answer.

Explanation

Offsetting uses credits from projects that avoid, reduce or remove emissions to compensate for emissions that remain after reduction efforts. Credible net zero strategies typically prioritise direct emission reductions before relying on offsets for residual emissions.

Question 19Sustainability and climate change

A company claims to be 'net zero' while continuing to increase absolute emissions and relying solely on purchased offsets. Which criticism is most appropriate?

  1. The claim is acceptable because net zero has no defined meaning
  2. The claim is acceptable only if the offsets are cheap
  3. The claim is acceptable because offsets neutralise all emissions immediately
  4. The claim lacks credibility because net zero requires deep emission reductions before residual offsetting Correct answer.

Explanation

Credible net zero frameworks require substantial absolute emission reductions across scopes, with offsetting limited to residual emissions that cannot yet be eliminated. Relying solely on offsets while emissions rise is widely regarded as greenwashing.

Question 20Sustainability and climate change

Which of the following best describes 'climate transition risk' for a fossil fuel extractor?

  1. Loss of asset value as policy, technology and markets shift away from fossil fuels Correct answer.
  2. Damage to coastal assets from sea-level rise
  3. Higher insurance premiums following a hurricane
  4. Disruption to operations from prolonged drought

Explanation

Transition risk arises from the move to a lower-carbon economy and includes policy, legal, technology, market and reputational components. Stranded asset risk from declining demand for fossil fuels is a classic transition risk.

Question 21Sustainability and climate change

Which of the following is the most appropriate treatment of a company's Scope 2 location-based emissions when reporting under the GHG Protocol?

  1. Include only electricity used in the head office
  2. Exclude purchased electricity because it is indirect
  3. Calculate using contractual instruments held by the company
  4. Calculate using grid-average emission factors for the location where electricity is consumed Correct answer.

Explanation

The location-based method applies average emission factors for the grids on which the energy is consumed, reflecting the physical system. Contractual instruments are used for the market-based method, which is reported alongside it.

Question 22Sustainability and climate change

A company reports emissions for a financial year. Under the GHG Protocol, which base year treatment is generally required when it restructures through acquisition or divestment?

  1. No adjustment is ever made to the base year
  2. The base year emissions are recalculated to maintain consistency with the current structure Correct answer.
  3. The base year is changed to the year of the acquisition
  4. Emissions are reported only for the acquired entity

Explanation

The GHG Protocol requires base year emissions to be recalculated for structural changes such as mergers, acquisitions and divestments, and for methodology changes, so that comparisons over time remain like-for-like. A significance threshold may be applied.

Question 23Sustainability and climate change

An analyst compares two companies' reported Scope 3 figures and finds one much lower. Which explanation should the analyst consider before concluding that the company has a lower value chain footprint?

  1. Scope 3 is only reported by state-owned entities
  2. Scope 3 is always zero for service companies
  3. Scope 3 measurement involves estimation, differing category coverage and data quality, so comparability is limited Correct answer.
  4. Scope 3 is a fixed and standardised measure that cannot vary

Explanation

Scope 3 accounting relies on estimates, spend-based or activity-based methods, and companies may include different categories or use different data quality. Reported figures are therefore not directly comparable without understanding the methodology and completeness.

Question 24Sustainability and climate change

Which of the following best explains why double materiality is relevant to sustainability reporting?

  1. It requires reporting only on matters that are financially material to the entity
  2. It requires every sustainability matter to be reported regardless of significance
  3. It considers both how sustainability matters affect the entity and how the entity affects society and the environment Correct answer.
  4. It applies only to carbon emissions

Explanation

Double materiality combines financial materiality, how sustainability matters affect enterprise value, with impact materiality, how the entity affects people and the environment. Frameworks such as the EU Corporate Sustainability Reporting Directive adopt this concept.

Question 25Sustainability and climate change

A company includes a scenario in which a carbon price of $150 per tonne is applied from 2030 and demand shifts to low-carbon products. Which type of scenario is this?

  1. A physical risk scenario
  2. A transition risk scenario Correct answer.
  3. A business-as-usual scenario
  4. A baseline scenario with no policy change

Explanation

A scenario featuring a rising carbon price and shifting demand reflects policy and market changes associated with the transition to a lower-carbon economy. Physical risk scenarios instead model hazards such as heat, flood and drought.

Question 26Sustainability and climate change

Under the GHG Protocol Corporate Standard, which approach to allocating emissions from purchased electricity reflects the actual contractual instruments a company has chosen, such as renewable energy certificates?

  1. The market-based method Correct answer.
  2. The operational control approach
  3. The location-based method
  4. The equity share approach

Explanation

The GHG Protocol Scope 2 Guidance requires dual reporting: a location-based figure using grid average emission factors, and a market-based figure reflecting contractual instruments such as RECs, guarantees of origin or supplier-specific tariffs. The market-based method therefore captures the emissions profile of the electricity the company has actually contracted for.

Question 27Sustainability and climate change

A manufacturer wants to disclose the emissions arising from the extraction and production of the raw materials it buys. Under the GHG Protocol's Scope 3 categories, these emissions normally fall within which category?

  1. Purchased goods and services Correct answer.
  2. Upstream transportation and distribution
  3. Waste generated in operations
  4. Business travel

Explanation

Scope 3 Category 1, purchased goods and services, covers cradle-to-gate emissions from goods and services the reporting company acquires. Extraction and production of raw materials used in the company's inputs sit in that category. Transport of those goods is a separate category and waste is another again.

Question 28Sustainability and climate change

Which concept describes the situation where the impacts of climate change, such as physical damage, are financially material to an entity and must therefore be reflected in its reporting?

  1. Reputational risk
  2. Transition risk
  3. Litigation risk
  4. Physical climate risk Correct answer.

Explanation

Physical climate risk arises from acute hazards such as floods and storms and chronic shifts such as temperature and rainfall patterns. Transition risk instead stems from the move to a lower-carbon economy, through policy, technology and market change. The distinction matters because the two are assessed and disclosed differently.

Question 29Sustainability and climate change

A company's sustainability report states that its emissions reduction target has been validated by the Science Based Targets initiative. Which description best matches what that validation signifies?

  1. The target has been approved by the company's national environmental regulator
  2. The target is consistent with limiting warming in line with the Paris Agreement criteria applied by the SBTi Correct answer.
  3. The target guarantees the company will achieve net zero by 2050
  4. The target has been audited as accurate under International Standards on Auditing

Explanation

SBTi validation assesses whether a corporate target is aligned with the level of decarbonisation the latest climate science says is needed, typically at least 1.5°C for Scope 1 and 2. It is a target-setting assessment, not an assurance of reported data or a regulatory permit.

Question 30Sustainability and climate change

Which international agreement established the goal of holding the increase in global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit it to 1.5°C?

  1. The Kyoto Protocol
  2. The Basel Convention
  3. The Montreal Protocol
  4. The Paris Agreement Correct answer.

Explanation

The Paris Agreement, adopted in 2015 under the UNFCCC, sets the well below 2°C and 1.5°C temperature goals. It is the reference point for most corporate climate target-setting and scenario analysis. The other instruments address different environmental problems.

Question 31Sustainability and climate change

A bank discloses the emissions associated with the loans and investments in its portfolio. Under the GHG Protocol's Scope 3 categories, these are reported as which category?

  1. Processing of sold products
  2. End-of-life treatment of sold products
  3. Downstream transportation and distribution
  4. Investments Correct answer.

Explanation

Scope 3 Category 15, investments, covers financed emissions for banks, investors and other financial institutions. It captures the attributable emissions of the entities and projects the institution finances. The other categories concern physical goods flows after sale.

Question 32Sustainability and climate change

Which statement best explains why a company's Scope 3 emissions are often the largest part of its total footprint?

  1. They are only relevant to companies in the energy sector
  2. They are calculated using higher emission factors than Scope 1 and Scope 2
  3. They include the company's direct fuel combustion, which is typically the dominant source
  4. They include emissions across the upstream and downstream value chain, which usually dwarfs the company's own operations Correct answer.

Explanation

Scope 3 covers 15 categories spanning suppliers, logistics, product use and disposal, so for most businesses outside heavy industry it dominates the inventory. Scope 1 covers only direct combustion and process emissions the company controls. This is why value chain engagement is central to credible net zero plans.

Question 33Sustainability and climate change

A company reports a 'gross' emissions figure and a separate 'net' figure after deducting purchased carbon credits. Under developing good practice, what should the company's reporting make clear?

  1. That gross emissions are reported separately and credits are disclosed as a distinct item rather than netted into the inventory Correct answer.
  2. That credits should be omitted from disclosure entirely
  3. That purchased credits can be used to reduce Scope 1 emissions in the inventory
  4. That the net figure is the only figure that needs to be disclosed

Explanation

Good practice requires gross emissions to be reported transparently, with any use of offsets or credits disclosed separately rather than deducted from the inventory. The GHG Protocol does not allow offsets to reduce reported Scope 1, 2 or 3 emissions. This preserves comparability and prevents overstated progress.

Question 34Sustainability and climate change

A property developer is preparing climate disclosures and wants to describe how its board oversees climate-related risks and opportunities. Which disclosure area does this address?

  1. Metrics and targets
  2. Strategy
  3. Governance Correct answer.
  4. Risk management

Explanation

Governance disclosure describes the board's and management's roles in overseeing and managing climate-related risks and opportunities. Strategy covers the actual and potential effects on the business, risk management covers the processes used, and metrics and targets cover measurement and performance.

Question 35Sustainability and climate change

A company applies a shadow internal carbon price of $70 per tonne when evaluating a new plant. Which statement best describes the purpose of this practice?

  1. It transfers funds to a government authority as a tax
  2. It is a legal obligation under the Paris Agreement for all companies
  3. It is used only to calculate the company's Scope 2 emissions
  4. It builds a potential future carbon cost into investment appraisal so that carbon exposure informs capital decisions Correct answer.

Explanation

A shadow carbon price is a management tool that embeds an assumed carbon cost into project appraisal and strategic decisions. It is voluntary and forward-looking, helping companies test resilience to carbon pricing. It is not a tax and is unrelated to calculating Scope 2.

Question 36Sustainability and climate change

An analyst is reviewing a company's climate disclosures and finds that the reported emissions data is internally inconsistent between years with no explanation. Which qualitative characteristic of useful sustainability information is most directly undermined?

  1. Timeliness
  2. Relevance
  3. Verifiability
  4. Comparability Correct answer.

Explanation

Comparability allows users to identify similarities and differences across periods and entities. Unexplained inconsistencies between years make trend analysis unreliable. Relevance, timeliness and verifiability may also suffer, but the specific defect here is the inability to compare periods.

Question 37Sustainability and climate change

A company has set a target to reduce Scope 1 and 2 emissions by 50% by 2030 from a 2020 base year. Which practice best supports credible tracking of progress?

  1. Recalculating the base year for structural changes such as acquisitions and disclosing the recalculation policy Correct answer.
  2. Excluding acquired operations permanently from the target boundary
  3. Reporting progress only in absolute terms without a base year
  4. Changing the base year each year to the most recent year available

Explanation

A base year should be recalculated for structural changes such as acquisitions, divestments and changes in calculation methodology, with the policy disclosed. This maintains like-for-like comparison and prevents progress being distorted by boundary changes. Arbitrary base year changes would undermine credibility.

Question 38Sustainability and climate change

A company operates in a jurisdiction introducing a carbon border adjustment mechanism on imports of carbon-intensive goods. Which type of climate-related risk does this most directly represent for an exporter into that market?

  1. Reputational risk
  2. Acute physical risk
  3. Policy and legal transition risk Correct answer.
  4. Chronic physical risk

Explanation

A border adjustment is a policy measure that imposes a cost linked to embedded carbon, so it falls within policy and legal transition risk. Physical risks concern climate hazards themselves. The mechanism affects costs and market access rather than the company's reputation directly.

Question 39Sustainability and climate change

A company wants to align its climate reporting with the IFRS Sustainability Disclosure Standards. Which statement best describes the relationship between IFRS S1 and IFRS S2?

  1. IFRS S1 applies only to financial institutions and IFRS S2 to all entities
  2. IFRS S1 covers climate and IFRS S2 covers all other sustainability topics
  3. IFRS S1 and IFRS S2 are mutually exclusive alternatives
  4. IFRS S1 sets general requirements for sustainability-related financial disclosures and IFRS S2 sets climate-specific requirements that build on it Correct answer.

Explanation

IFRS S1 provides the general framework for disclosing sustainability-related financial information, while IFRS S2 sets out the specific requirements for climate-related disclosures. IFRS S2 is applied together with IFRS S1, not instead of it. Both are issued by the ISSB.

Question 40Sustainability and climate change

A company's net zero plan relies heavily on carbon removals in 2045 but contains no interim targets or capital expenditure commitments for the next decade. How should an analyst most appropriately characterise this plan?

  1. It lacks credible near-term action, so the long-term commitment is not supported by an implementable pathway Correct answer.
  2. It is compliant because net zero by 2050 is the only requirement
  3. It is acceptable because interim targets are optional for all companies
  4. It is robust because removals are a recognised net zero lever

Explanation

Credible net zero plans require near-term targets and concrete actions, with residual emissions neutralised only after deep reductions. A plan that defers action and depends on future removals lacks an implementable pathway. Analysts should treat the long-term claim with caution.

Question 41Sustainability and climate change

A company reports emissions from employee commuting and from teleworking. Under the GHG Protocol's Scope 3 categories, these belong to which category?

  1. Downstream leased assets
  2. Upstream transportation and distribution
  3. Employee commuting Correct answer.
  4. Business travel

Explanation

Scope 3 Category 7, employee commuting, covers transportation of employees between their homes and worksites, including teleworking emissions where relevant. Business travel is a separate category covering travel for business purposes. Leased assets and upstream transport concern different activities.

Question 42Sustainability and climate change

A company's physical risk assessment finds that one warehouse is exposed to river flooding with a return period of 1 in 50 years. Which refinement would most improve the usefulness of this assessment for financial planning?

  1. Excluding the warehouse from the assessment because flooding is uncertain
  2. Reporting only the return period without any financial estimate
  3. Relying solely on historical flood records without scenario analysis
  4. Estimating the financial loss and business interruption under several return periods and climate scenarios Correct answer.

Explanation

Physical risk becomes decision-useful when translated into potential financial effects across a range of scenarios and return periods. This allows the company to weigh adaptation investment and insurance against expected losses. A hazard statement alone does not support capital planning.

Question 43Sustainability and climate change

A company sells equipment that consumes significant electricity during use. The emissions from that electricity consumption over the product's life are reported under which Scope 3 category?

  1. Downstream transportation and distribution
  2. End-of-life treatment of sold products
  3. Processing of sold products
  4. Use of sold products Correct answer.

Explanation

Scope 3 Category 11, use of sold products, covers emissions from the use of goods and services sold, including direct energy consumption such as electricity. This category can be highly material for manufacturers of energy-using equipment. End-of-life and processing are separate categories.

Question 44Sustainability and climate change

A company states that its climate disclosures have been prepared in accordance with IFRS S2. Which requirement is central to that assertion?

  1. Disclosing a guaranteed net zero date
  2. Disclosing the personal carbon footprint of the board
  3. Disclosing governance, strategy, risk management and metrics and targets relating to climate-related risks and opportunities Correct answer.
  4. Disclosing only the company's total Scope 1 emissions

Explanation

IFRS S2 requires disclosure across governance, strategy, risk management, and metrics and targets, with climate-specific requirements such as Scope 1, 2 and 3 emissions and scenario analysis. It is structured around the four areas derived from the TCFD framework. A single emissions total would not satisfy the standard.

Question 45Sustainability and climate change

A company is choosing a base year for its emissions target. Which consideration best supports the choice?

  1. The base year should be representative of the company's operations and have reliable, verifiable data Correct answer.
  2. The base year should always be the most recent year
  3. The base year should be the year with the lowest emissions to make targets easier
  4. The base year is irrelevant if the target is intensity-based

Explanation

A credible base year is representative of the business, has complete and reliable data, and can be recalculated consistently for structural changes. Choosing a low-emissions year or a year with poor data undermines the integrity of the target. Intensity targets still require a base year for tracking.

Question 46Sustainability and climate change

A company reports an emissions intensity metric of tonnes of CO2e per unit of revenue. Which limitation should an analyst keep in mind when using this metric?

  1. Intensity can fall while absolute emissions rise if output grows faster than emissions Correct answer.
  2. Intensity metrics are always more accurate than absolute metrics
  3. Intensity metrics are only used for Scope 3
  4. Intensity metrics eliminate the need for a base year

Explanation

Intensity ratios normalise emissions by a measure of output, so they can improve even as absolute emissions increase. This matters when assessing alignment with absolute reduction pathways. Absolute and intensity metrics should be read together.

Question 47Sustainability and climate change

A company is assessing the financial materiality of climate risk for its annual report. Which approach best reflects the concept of financial materiality?

  1. Assessing the company's impact on the climate regardless of financial effect
  2. Relying solely on the views of the largest shareholder
  3. Reporting every possible climate issue regardless of significance
  4. Assessing whether climate matters could influence the economic decisions of users of the financial statements Correct answer.

Explanation

Financial materiality asks whether information could influence the economic decisions of primary users of general purpose financial reports. This differs from impact materiality, which focuses on the company's effects on people and the environment. Double materiality combines both perspectives.

Question 48Sustainability and climate change

A company has operations in a water-stressed region and is assessing chronic physical risk. Which change is most consistent with a chronic physical climate hazard?

  1. A gradual long-term decline in average rainfall reducing water availability Correct answer.
  2. A single flash flood event damaging a facility
  3. A one-off wildfire destroying a distribution centre
  4. A sudden storm surge inundating a warehouse

Explanation

Chronic physical risks are longer-term shifts in climate patterns such as sustained temperature change, changing rainfall and rising sea levels. Acute risks are event-driven hazards such as floods, storms and wildfires. The distinction guides whether adaptation addresses gradual change or extreme events.

Question 49Sustainability and climate change

An investor compares two companies with identical reported Scope 1 and 2 emissions but very different Scope 3 disclosures. Which conclusion is most defensible?

  1. The company with lower reported Scope 3 has the lower total footprint
  2. The comparability of their total footprints is limited because Scope 3 coverage and estimation methods may differ materially Correct answer.
  3. Scope 3 can be ignored because it is outside the company's control
  4. Scope 3 disclosures are always comparable between companies

Explanation

Scope 3 figures depend heavily on which categories are included, data quality and estimation methods, so totals are often not directly comparable. Investors should examine the boundaries and methods before drawing conclusions. Ignoring Scope 3 would misstate exposure for most businesses.

Question 50Sustainability and climate change

A company sets a target validated as consistent with 1.5°C but continues to lobby against climate policy in the jurisdictions where it operates. How should an analyst assess this?

  1. Policy engagement is outside the scope of climate-related disclosures
  2. The validated target guarantees the company's policy positions are aligned
  3. Lobbying is irrelevant to the credibility of a climate target
  4. The inconsistency between the public target and policy engagement undermines the credibility of the climate commitment Correct answer.

Explanation

Credibility depends on alignment between stated climate ambitions and actual conduct, including public policy engagement. Contradictory lobbying signals that the target may not reflect genuine strategic intent. Analysts increasingly scrutinise this as part of governance and strategy assessment.