On 1 July 2020, the PRA issued a Dear CEO letter in which it states that firms should have fully embedded their approaches to managing climate-related financial risks by the end of 2021. This means that by the end of 2021, firms should be able to demonstrate that the expectations set out in  ‘Supervisory Statement 3/19: Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change’ (SS3/19) have been implemented and embedded throughout their organisation as fully as possible. In doing this, firms should take a proportionate approach that reflects their exposure to climate-related financial risk and the complexity of its operations.

The PRA also discusses in the Dear CEO letter its observations from its thematic review of firms’ SS3/19 plans. It has found that most firms have made good progress in developing approaches to identify, assess, manage, report and disclose climate-related financial risks and have started to embed them in associated governance and control structures. An annex to the Dear CEO letter provides examples of good practice and highlights where the PRA sees gaps between firms’ intentions and its expectations. In particular metrics and quantification were identified as the most challenging aspect of assessing climate related financial risks. The PRA recognises that there are some areas where the science, data or tools are not yet sufficient to estimate the risks accurately. In these cases firms should ensure that identified risks are recognised through the use of reasonable proxies and assumptions.

The PRA will continue with its ongoing engagement on climate risks to discuss the implementation and progress of implementation plans with key individuals, particularly the assigned senior management function holders. Firms should also expect climate-related financial risk to be integrated within the PRA’s full range of regular supervisory activities, including the 2021 Biennial Exploratory Scenario exercise. The PRA expects boards to receive periodic updates throughout a firm’s embedding process.