Featured Product

    CFRF Publishes Guide for Addressing Climate-Related Financial Risks

    June 29, 2020

    The Climate Financial Risk Forum (CFRF), which is a joint climate risk forum of FCA and PRA, published a guide written by the industry for the industry to help firms approach and address climate-related financial risks. The guide, the first of its kind, provides practical recommendations to firms of all sizes on disclosure of climate-related financial risks, effective risk management, scenario analysis, and opportunities for innovation in the interest of consumers. The guide is intended to help firms understand the risks that arise from climate change and to provide support on how to integrate these risks into strategy and decision-making processes. Each chapter within the guide provides practical tools, experience, knowledge, and case studies, which firms can use as they develop their strategies, processes, and approaches. An update on the forward-looking work and future outputs of CFRF will be provided later in 2020.

    The guide aims to build capacity and share best practices across financial regulators and industry. It recognizes that firms of different sizes, or of differing levels of expertise and experience may take different approaches in considering climate-related financial risks. The working groups recognize that embedding climate risk management is a multi-year endeavor and the guide indicates where firms can make a start and then develop their approach over subsequent years. The guide contains chapters that cover the following aspects of the management of climate-related financial risks:

    • Risk management. The guide outlines recommendations from the Working Group, including how firms can approach designing and implementing a governance approach for climate risks akin to the one used for established financial risks, while addressing climate risk-specific nuances. It discusses how firms can decide whether to treat climate risk as a standalone or as a cross-cutting risk and then integrate climate risk into existing risk management frameworks, recognizing how the linkages between climate risk and established risk types may be identified and understood. By appropriately embedding climate-related financial risk into its governance and risk management processes, a firm can make informed business decisions and improve their resilience. The chapter on risk management should be read in conjunction with SS3/19, which presents the FCA requirements for solo-regulated firms, including consideration of how external factors can impact on strategy and viability, as discussed in CP19/20 and in the Scenario Analysis and Disclosure chapters.
    • Scenario analysis. The chapter on scenario analysis presents a practical guide outlining leading practices and case studies on how to use scenario analysis to assess climate-related financial risks to inform the strategy, risk management, and business decisions of a firm. By appropriately modeling and considering a range of possible scenarios, a firm can better understand and manage future risks today, while capturing opportunities to support the transition to a net-zero carbon economy. This chapter should be read in conjunction with SS3/19 and with outputs of the PRA's 2021 Biennial Exploratory Scenario (BES); the FCA’s requirements for solo-regulated firms, including CP19/20 and requirements around scenario analysis in the Prudential sourcebook for investment firms (IFPRU); and the Network for Greening the Financial System (NGFS)’s publication on scenario analysis and reference scenarios
    • Disclosures. The chapter on disclosures contains practical recommendations for financial institutions wishing to meet good practice expectations for public climate-related financial disclosures. It draws on good practice examples from industry as well as guidelines set by relevant and respected industry bodies, including the recommendations of the Taskforce for Climate related Financial Disclosures (TCFD). By making effective climate-related financial disclosures, a firm can improve transparency, thus helping the market to appropriately assess the true future value of assets.
    • Innovation. The chapter on innovation contains recommendations for how financial institutions and other stakeholders can start to deliver a step-change in aligning private-sector financial flows with climate goals, drawing on examples of good industry practices. By developing novel products, services, policies, and approaches, a firm can adapt its business to respond to the potential impact of climate change, benefit consumers, and deliver the change required to meet climate goals. 

    The CFRF will maintain relevance and leverage lessons learned by the industry by continuing to deliver new material on topics that progress the management of climate-related financial risks and opportunities. CFRF will continue to reach out to get wider views on the issues that firms face and areas where the recommendations could be adapted to make them more practical and usable. These insights will feed into the ongoing work of CFRF, which is currently planning the agenda for its second year. The guide complements wider work from PRA and FCA in this space. This includes PRA’s supervisory expectations for banks’ and insurers’ approaches to managing financial risks from climate change as well as FCA’s proposals to improve issuers’ climate risk disclosures by applying recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD).


    Related Links

    Keywords: Europe, UK, Banking, Insurance, Securities, Climate Change Risk, TCFD, ESG, Climate Financial Risk Forum, Guidance, Disclosures, Scenario Analysis, PRA, FCA

    Related Articles
    News

    EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package

    EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.

    February 26, 2021 WebPage Regulatory News
    News

    EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway

    The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.

    February 25, 2021 WebPage Regulatory News
    News

    PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks

    In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.

    February 25, 2021 WebPage Regulatory News
    News

    FSB Sets Out Work Priorities for 2021

    In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.

    February 25, 2021 WebPage Regulatory News
    News

    EU Publishes Corrigendum to Revised Capital Requirements Regulation

    EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).

    February 25, 2021 WebPage Regulatory News
    News

    ESAs Issue Statement on Application of Sustainability Disclosures Rule

    ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).

    February 25, 2021 WebPage Regulatory News
    News

    EC Consults on Crisis Management and Deposit Insurance Frameworks

    EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.

    February 25, 2021 WebPage Regulatory News
    News

    HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs

    HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.

    February 24, 2021 WebPage Regulatory News
    News

    EBA Proposes Standards for Supervisory Cooperation Under IFD

    EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.

    February 24, 2021 WebPage Regulatory News
    News

    BoE Addresses Banks in Scope of First Resolvability Assessment

    BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.

    February 24, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6629