In an unprecedented move, the Prudential Regulation Authority has instructed boards of banks and insurers to improve firms’ approaches to managing the financial risks from climate change.
The PRA published a consultation paper on a draft supervisory statement, setting out expectations regarding firms’ approaches to improve the planning of long-term risks of climate change.
The statement was addressed to all “UK insurers, banks, building societies and PRA-designated investment firms”.
The proposed expectations included:
- Clear board-level engagement and responsibility for managing the financial risks from climate change, including identifying the relevant Senior Management executive to take charge and report to the board
- Addressing risks through firms’ existing risk management frameworks, recognising the need for a strategic approach to manage financial risks from climate change
- Conducting scenario analysis to inform a firm’s strategic planning and determine the impact of the financial risks from climate change on its overall business strategy
- Disclosing information on how financial risks from climate change are integrated into governance and risk management processes
The consultation was published by the PRA, which oversees the UK’s largest lenders and insurers on behalf of the Bank of England.
This comes as global organisations, financial regulators and private institutions around the world, are grappling with ways to address systemic risks presented by climate change.
Last week, 18 central banks including those of England, Germany, Australia, Singapore, Japan and China warned financial risks of climate change were system wide and potentially irreversible if not addressed.
