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PRA and FCA’s climate forum launches second round of guides

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The Climate Financial Risk Forum (CFRF) has published a second batch of guides for insurers and other financial firms focusing on risk management, scenario analysis, disclosure, innovation and climate data.

The forum is chaired by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) and brings together industry participants. It was launched in March 2019.

The forum’s risk management working group has produced guidance for institutions on how to produce and implement risk appetite statements that integrate climate-related financial risks.

It has also written a paper summarising companies’ training needs on climate risk and opportunities and how these can be met.

In one of several workstreams for the forum, a working group for scenario analysis has produced guidance including practical examples of how companies can incorporate sector-specific points when developing an approach to scenario analysis. The group will publish an online scenario analysis tool in Q1 next year.

A separate working group has brought together a number of case studies on disclosure from various companies that will assist firms as they develop their approach to climate-related disclosures.

It has also created guidance highlighting the legal risks associated with publishing a climate-related disclosure.

The forum’s innovation working group has identified practical opportunities to mobilise financial capital and usher in an economy-wide transition to meet climate targets.

The forum’s report on climate data and metrics recommends employing metrics in transition risks, physical risks, portfolio decarbonisation, mobilising transition finance and engagement.

PRA CEO Sam Woods said: “The contribution provided by the forum is based on the development of best practice for industry, by industry.

“Building on the excellent foundation provided by the 2020 guide, the papers published today provide practical guidance on a multitude of issues to help firms manage the financial risks generated by climate change”

FCA CEO Nikhil Rathi said: “These guides will help firms overcome some of the difficulties they’ve faced.

“Importantly, they also focus on innovation, so financial firms can see the opportunities, as well as challenges, from more effective climate-related financial risk management.”

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