The Bank of England’s Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have today released statements on the systemic impact of climate change to UK financial markets
They are consulting on how they should respond to ensure that institutions like banks, insurers and pension providers are properly managing and reporting on the accompanying risks to their business.
Responding to the interventions, ClientEarth lawyer Danielle Lawson said: “You don’t need to spend long considering recent headlines on increased extreme weather events to understand that climate change is a pressing issue which is likely to transform not just the physical environment around us but also the financial world that we depend on. However, it is clear that up until now banks and insurers, among others, have not been addressing this issue with the urgency and rigour it demands.
The PRA wants systemically important financial institutions to engage with the risks posed to their businesses by climate change at a strategic level and to demonstrate to both regulators and customers that they are looking ahead to manage future risks as they develop.
The regulators are also making it clear that they view firms as already having obligations to consider climate risk and that compliance with existing rules on governance and disclosure may increasingly be assessed in this light.
Lawson added: “Today’s publications from the UK’s main financial regulators echo what ClientEarth has been saying for years – that the future stability and security of financial markets rely on institutions like banks, insurers and pension providers getting to grips with climate risk and taking their response seriously at the highest levels of management.
“We are pleased that the FCA and PRA have heeded our requests to conduct wider reviews into how climate change impacts financial market participants and to form a Climate Financial Risk Forum to ensure a joined-up approach. In particular, it is reassuring to see that both regulators imply that reporting in line with the recommendations of the Taskforce on Climate-related Financial Disclosures is the best way to demonstrate compliance and contribute to establishing proper minimum standards.”