On 30 April 2025, the Prudential Regulation Authority (PRA) published consultation paper CP10/25 – Enhancing banks’ and insurers’ approaches to managing climate-related risks – Update to SS3/19.

Background

The PRA explains that since it first set expectations for firms on climate change in 2019, firms have begun to build their climate-related risk management capabilities; however progress is uneven and more needs to be done to meet the expectations. Firms have asked the PRA to give further clarity around what it expects them to do to manage the effects of climate change.

Proposals

The proposals in CP10/25 consist of supervisory expectations for effective risk management practices rather than rules for banks and insurers to follow. The PRA’s aim is to set out clear, straightforward and concise expectations about climate-related risk identification, management and governance outcomes that it would like to see from firms, whilst at the same time continuing to provide space for firms to take action and develop innovative solutions that are most suited to their business.

As part of the proposals, the PRA has published a draft supervisory statement (SS) which updates the existing SS3/19.

The PRA’s executive director for prudential policy, David Bailey, gave a speech at the Climate Financial Risk Forum in which he discussed the opening of the consultation period for CP10/25 and provided some further insight on what the PRA is trying to achieve. Key points included:

  • The proposals are intended to be enhancements to the existing expectations and do not represent a change of direction in the PRA’s approach to climate risk.
  • The updated expectations place greater emphasis on the rigorous use of scenario analysis, with firms expected to show a strong understanding of how they will take the outputs from the scenarios they design and construct and use them to actively inform the business decisions they take.
  • The expectations will stress the need for further integration of climate risk into firms’ governance frameworks.
  • Firms need a clear statement of risk appetite that cascades down from the top of the firm to individual business lines, as well as robust risk management frameworks to allow firms to balance the risks they face when setting their business strategy.
  • The availability of high-quality disclosures will be key, and the PRA continues to be a strong supporter of the International Sustainability Standards Board and the development of a framework for UK Sustainability Reporting Standards.

Next steps

The consultation closes on 30 July 2025.