The working groups of the Climate Financial Risk Forum (CFRF) published a second round of guides (or Session 2 guides), written by the industry for the industry, to help financial firms manage climate-related financial risks. CFRF is an industry forum jointly convened by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The guides, which build on a guide that was published in June 2020, focus on risk management, scenario analysis, disclosure, innovation, and climate data and metrics. Various CFRF working groups have published ten different outputs in total.
The key outputs from the CFRF working groups, also known as the Session 2 guides, can be summarized as follows:
- The Risk Management Working Group (RMWG) has developed guides on developing climate risk appetite statements and risk management use cases. Additionally, the Risk Management Working Group has produced a paper that summarizes a firm’s training needs for climate risks and opportunities and how they could be delivered as a coherent syllabus.
- The Scenario Analysis Working Group (SAWG) has produced practical examples on how firms can incorporate sector specific points when developing an effective approach to scenario analysis. The Scenario Analysis Working Group will publish a publicly available online scenario analysis tool in the first quarter of 2022. The tool will be designed for use by smaller firms who may not have the experience or resources to attempt independently. The idea of the tool is that firms would input some basic information regarding their business activities, products, or risks into the tool, to then output a narrative description of climate risks and opportunities.
- The Disclosure Working Group (DWG) has collated a number of case studies on disclosure from a variety of organizations that will be of interest to firms as they develop their approach to climate-related disclosures. The Working Group has also produced guidance highlighting the legal risks associated with publishing a climate-related disclosure and how these risks can be effectively managed.
- The Innovation Working Group (IWG) has focused on identifying and sharing practical opportunities to mobilize financial capital and steward an economy-wide transition to meet climate targets and the resultant briefing paper highlights the key points. Additionally, the Innovation Working Group have produced a set of seven short films highlighting innovative approaches to mobilizing finance in support of the transition to net-zero.
- CFRF published a guide on climate data and metrics which recommends five areas where climate-related metrics could be employed: transition risks, physical risks, portfolio decarbonization, mobilizing transition finance, and engagement. The first part of the report provides detail on each of these areas. The second part focusses on implementation and provides practical guidance and support on convergence towards a set of common and consistent climate metrics.
Many of the Session 2 guides will help firms accelerate their efforts in responding effectively to climate-related financial risks and opportunities. In particular, the risk appetite statements, scenario analysis guide, disclosure case studies, and the climate data and metrics dashboard have been deliberately designed to enable firms to overcome the significant challenges that they have encountered in embedding climate risk management in their organizations. The Innovation report provides commentary on actionable innovation opportunities to mobilize financial capital and help steward the economy to net zero.
Keywords: Europe, UK, Banking, Insurance, Securities, Climate Change Risk, ESG, Disclosures, Scenario Analysis, Risk Appetite, CFRF, Stress Testing, FCA, PRA
Previous ArticleEU to Explore Potential of Establishing a Joint Cyber Unit
APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).
The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).
The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.
EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.
The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.