Climate Financial Risk Forum (CFRF) Session 3 – minutes 27 April 2022

The FCA and PRA hosted the first meeting of the CFRF’s third session on 27 April 2022. The Forum agreed to the Terms of Reference for Session 3 (revised to reflect the new Forum membership and technical working groups).
Published on 27 May 2022

Changing external environment

The Forum discussed the changing external environment including the war in Ukraine and its impact on energy. Forum members broadly agreed that the nature of the current external environment is generating a unique set of challenges for firms as they consider climate-related financial risks and opportunities, coupled with the implications of transition to net zero.

CFRF members considered how they should adapt their workplans in response to the associated challenges and the scope for it to undertake bespoke work that helped firms navigate these challenges could be valuable.

Transition to Net Zero Working Group (‘Transition WG’)

The Transition WG agreed to develop a holistic framework to help firms manage the transition to net zero. This will include managing the financial impact of the transition on relevant firms and exploring the additional role they can undertake to contribute towards the real economy transition in a way that reduces future system-wide risks.

Noting the breadth of work to be done, the Forum noted the importance of the Transition WG’s outputs being complementary and not duplicative of others. To aid this the Transition WG will actively engage with other fora focused on the transition to net zero, including the HMT Transition Plan Taskforce and the Glasgow Financial Alliance for Net Zero.

Disclosure, Data and Metrics Working Group (‘DDM WG’)

The Forum discussed specific areas of focus for the DDM WG, and agreed on the following:

  1. Review of firms’ climate disclosures against existing as well as upcoming standards. In light of that, produce material that identifies best practice disclosures and, where appropriate, suggest end state practices.
  2. Build on Session 2 climate data and metrics report to incorporate consideration of current data limitations and gaps and to recommend approaches to overcome them. This will include consideration of consistent control frameworks and assurance around climate disclosures.
  3. Develop a framework that explores definitional consistency, focussing on transition finance and green lending.

It was agreed that the DDM WG would explore whether to provide any feedback on the International Sustainability Board’s (ISSB) two Exposure Drafts (general sustainability-related disclosure requirements and climate-related disclosure requirements) before the consultation ends on 29 July 2022.

Scenario Analysis working group (‘Scenario WG’)

The Forum discussed outputs and possible key focus areas for Session 3, and agreed that the following would be taken forward:

  1. The completion and launch of the online scenario analysis narrative tool that is already in development (scheduled to launch in June).
  2. Working with GARP to undertake a re-run of the Global Climate Risk Survey, with a subset of question on firms’ scenario analysis capabilities.
  3. Produce a document that sets out lessons learned from the Bank of England 2021 Climate Biennial Exploratory Scenario, collaborating with CFRF and CGFI.
  4. Build on Session 2 guides to consideration other risk transmission channels (eg litigation risk) and their impact on scenario analysis.

The next CFRF meeting will take place in July 2022.