Skip to content

CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Risk Management

Meghna Pharma Ltd. has set a climate risk appetite in which it will not invest in any new capacity with emissions intensity above a stated limit. A proposed plant exceeds the limit, but the project head argues the IRR is high. The board's most appropriate response under a sound risk governance framework is to:

The proposal should be treated as outside risk appetite and escalated for redesign or a formally approved exception. Risk appetite sets limits the board accepts, so a high IRR cannot override it. Approval by the sponsor alone or silent acceptance would weaken governance and board oversight.

  1. AApprove it, since returns outweigh appetite statements
  2. BTreat the proposal as outside appetite and require escalation, redesign or a formally approved exceptionCorrect
  3. CApprove it and disclose nothing as it is below materiality
  4. DDelegate the decision to the project head alone

Explanation

Risk appetite is the level of risk the board is willing to accept, and proposals breaching it must be escalated, modified or explicitly approved as an exception by the appropriate authority. High returns alone do not override appetite. Silent approval or delegation to the project sponsor undermines oversight.

Did you get it right without looking?

One question tells you little. A timed set on Risk Management shows your real accuracy, how long you take and where you lose marks.

Practise Risk ManagementFree diagnostic mock

More Risk Management questions