On 15 April 2019, the PRA published Policy Statement 11/19: Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (PS11/19).

PS11/19 is relevant to all UK insurance and reinsurance firms and groups, banks, building societies, and PRA-designated investment firms (collectively referred to as firms).

In PS11/19 the PRA provides feedback to responses to Consultation Paper 23/18: Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (our blog is here). It also contains the final Supervisory Statement 3/19: Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (SS3/19).

In SS3/19 the PRA sets out expectations concerning how firms:

• embed the consideration of the financial risks from climate change in their governance arrangements;
• incorporate the financial risks from climate change into existing risk management practice;
• use (long-term) scenario analysis to inform strategy setting, and risk identification and assessment; and
• develop an approach to disclosure on financial risks from climate change.

Following its consultation, the PRA has made the following changes to the expectations in SS3/19:

• provided more clarity on the timescales appropriate for scenario analysis;
• updated the wording of the disclosure expectations in response to requests for clarification; and
• clarified that financial positions related to climate vulnerable assets cannot always be hedged, so firms should not rely on that assumption.
• The expectations in SS3/19 take effect on the publication of PS11/19. The PRA expects firms to have an initial plan in place to address the expectations and submit an updated senior management function (SMF) form by 15 October 2019. However, firms should note that expectations on firms and SMF holder(s) will take into consideration the evolving understanding of what best practice looks like.

The PRA intends to publish more detailed expectations in due course.