Managing financial climate change risks

‘Climate change, and society’s response to it, present financial risks which are relevant to the Prudential Regulation Authority’s (PRA) objectives. While the financial risks from climate change may crystallise in full over time, they are becoming apparent now.’ 

The PRA were the first regulator globally to require climate disclosures for its authorised firms when it implemented Supervisory Statement 3/19 (SS3/19). Firms were expected to develop a strategic approach to manage their risks, considering:

• governance; 
• risk management; 
• scenario analysis; and 
• disclosure. 

Since the issue of SS3/19 in April 2019, the prominence of climate related risks has greatly increased. As a result, firms have made significant strives to comply with those requirements. Supervisory work, completed by the PRA, outlined in Dear CEO letters issued in July 2020 and October 2022, highlighted that satisfactory progress had been made but more work is required for firms to be fully compliant. 

As part of our work with financial services firms, we have undertaken both advisory and assurance internal audit reviews to measure progress in implementing the strategic approach across each of the areas detailed above, in line with the requirements set out in SS3/19. This paper highlights some of the key findings and outcomes from our reviews, identifying both best practice and areas in which firms need to continue to implement climate change measures.