Today the PRA has published a consultation paper on a draft supervisory statement (SS) which sets out expectations regarding firms’ approaches to managing the financial risks from climate change. These centre on how managing the far-reaching and foreseeable risks from climate change requires a strategic approach which considers how actions today affect future financial risks. The supervisory statement is relevant to all UK insurers, banks, building societies and PRA-designated investment firms (“firms”).
Climate change and society’s response to it presents financial risks that are relevant to the PRA’s objectives of safety and soundness. Whilst these risks may crystallise in full over longer-time horizons, they are becoming apparent now. Firms are enhancing their approaches to managing these risks, but more need to take a forward-looking, strategic approach if financial risks are to be minimised.