On 1 July 2020, the Prudential Regulation Authority (PRA) published a “Dear CEO letter”, which stated that firms (i.e. UK-incorporated entities) need to have fully embedded their approaches to managing climate related financial risks by the end of 2021.
The end of 2021 deadline represents more than two and a half years since the PRA published Supervisory Statement 3/19: Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change, and over two years from the allocation of responsibility for climate-related financial risks to Senior Management Function (SMF) holders.
Given that the PRA’s expectations have been well trailed it is unlikely that the regulator with be sympathetic to those firms that fail to meet the deadline and where there are failures there will be identifiable SMF holders that the PRA can hold to account.
At Norton Rose Fulbright our Risk Consulting team, working in tandem with our financial services team, is working with a wide range of firms helping them meet their regulatory and other obligations on sustainable finance. One of the key observations from our involvement with different clients in this space is that firms are at different stages in being ready to comply with their obligations. Some firms are very advanced in their work on sustainable finance, whilst others are not.
For those firms that are only beginning to focus on managing their climate related financial risks our Risk Consulting team has produced a sector agnostic checklist of activities that can be used as a reference point ensuring that all the key issues are addressed to support meeting the PRA’s deadline. Firms that are already advanced in their preparations may also use the checklist to ensure that they have not missed anything.
The checklist is grouped into a number of key “themes” covering: governance, management information and reporting, risk management, compliance monitoring, policies and procedures, scenario analysis disclosures and sustainability strategy programme delivery.
The checklist can be further tailored to meet individual firm requirements as needed.
For further information regarding the checklist please contact John Coley, Iain Hawthorn or Simon Lovegrove