PRA has written to PRA regulated firms with a summary of capabilities PRA expects them to have to manage climate-related financial risks. The letter reminds firms that PRA expected them to have fully embedded their approaches to managing climate risks by the end of 2021, and, as a result, it started actively supervising firms against its expectations during 2022.
PRA has found that firms have taken good steps, with governance and risk management improving. In summary:
- Boards and Executives should by now be able to show they understand how the firm is integrating climate considerations into their strategies, planning, governance and risk management;
- risk management frameworks and tolerances should be embedded and appropriately tailored, and firms should have in place a counterparty engagement strategy. Firms’ ORSAs or ICAAPs should also by now provide sufficient information to allow a reader to understand analysis of climate risks and capital;
- firms should be able to show supervisors that they have embedded scenario analysis into their risk management and business planning processes and that the scenarios are relevant to their business; and
- firms should be able to explain how they identify and close data gaps.
PRA is working to continue supporting firms, and will continue to assess compliance with SS3/19. It says it is particularly important that the Board and the SMF for climate should be able to demonstrate appropriate oversight and control of the firm-wide climate agenda.