On 30 January 2025, the Prudential Regulation Authority (PRA) published its Climate Change Adaptation Report 2025.

Background

This is the PRA’s third climate change adaptation report, which has been produced in response to an invitation by the Department for Environment, Food & Rural Affairs (DEFRA) to participate under the fourth round of the climate change adaptation reporting power.

What is in the report?

The report sets out the PRA’s response to the risks that climate change poses to its operations and policy objectives. It looks at the steps taken by banks and insurers since 2021 to respond to the impacts of climate change, and how the PRA’s regulatory work has evolved in that period. The report also outlines several areas of focus for the PRA in the coming months.

The PRA notes that the current goal of the Bank of England’s (BoE) policy work on climate change and the transition to net zero is to play a leading role in enhancing the resilience of the UK financial system and in understanding the impacts on the macroeconomy. As part of that work, the PRA is taking action to ensure that firms identify, measure, manage and, where outside risk appetite, mitigate the climate risks they face.

Areas covered in the report include:

  • The role of the BoE and the PRA, as well as the PRA’s role alongside other regulators and governments.
  • Climate-related operational and financial risks to PRA-regulated firms.
  • The PRA’s response to climate-related risks, including how they have evolved and the PRA’s latest view of firms’ progress and preparedness.
  • Next steps.

Next steps

The PRA plans to update its supervisory expectations, with a consultation paper expected during 2025 seeking views on its proposals.

Once the final supervisory statement is published, the Climate Financial Risk Forum (an industry forum co-chaired by the PRA and the Financial Conduct Authority) intends, in due course, to provide a forum for industry to share experiences and collaborate to update and build on its existing guidance and tools to help firms evolve their integration of climate risk consistent with the revised supervisory expectations.

The BoE also plans to continue, in parallel, to assess the potential build-up of systemic risks relating to climate change (as set out in the November 2024 Financial Stability Report), supported by continued collaboration in international fora in support of its statutory objectives and wider remit as they relate to matters of climate risk.