On 15 October 2018, the PRA published Consultation Paper 23/18: Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (CP23/18).
The PRA’s recent review of the banking and insurance sectors has highlighted significant differences in the level of maturity of firms’ responses to the financial risks from climate change. While firms’ approaches are evolving from a corporate social responsibility perspective to also considering climate change as a financial risk, only a few firms have adopted a strategic approach to these risks.
In CP23/18 the PRA seeks views on a draft supervisory statement on banks’ and insurers’ approaches to managing the financial risks from climate change. Essentially, the PRA’s proposals set out how effective governance, risk management, scenario analysis and disclosures may be applied by firms to address the financial risks from climate change.
The draft supervisory statement sets out the PRA’s proposed 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 assessment and identification; and
- develop an approach to disclosure on the financial risks from climate change.
The deadline for comments on CP23/18 is 15 January 2019.
