U.K. financial services firms need to do more to meet regulatory expectations on risks from global warming, the prudential watchdog said Wednesday as it set out new guidance.
The Prudential Regulation Authority published updated guidelines Wednesday for how banks and insurers should consider the “building risks” from climate change, after finding that progress on the initial standards published in 2019 has been “uneven.”
Its consultation paper provides expectations for how banks and insurers should act, rather than rules. It includes a greater emphasis on the use of scenario analysis, including that firms show a strong understanding of how this work is used to inform business decisions and a call for firms to put in place a clear statement of risk appetite from the top of the institution.
The PRA said it found risk analysis provided to boards on the financial effects of climate-related risks is “often unclear and is generally insufficiently specific or targeted,” preventing senior figures from properly assessing risks.
