October 21, 2021

UK Climate Financial Risk Forum issues new guidance

The Climate Financial Risk Forum, a financial sector group composed of senior representatives of banks, insurers, asset managers, pension funds and other entities, and chaired jointly by the UK Financial Conduct Authority and the Prudential Regulation Authority, has published a second series of guides designed to help the financial sector develop an appropriate approach to climate-related financial risks.  The ten newly-issued guides build on the first set, issued by the CFRF in July 2020, and offer direction in the areas of Risk Management, Scenario Analysis, Disclosure, Innovation, and Climate Data and Metrics.

Three of the new guides fall within the category of Risk Management.  These documents offer practical advice on drafting and implementing an effective climate risk appetite statement, with a focus on the impact of climate change on the firm – whether insurance, asset management, corporate banking, or retail banking, the impact of the firm itself on the climate, and credit risk in the context of climate change.  The guides include case scenarios tailored to each of the covered industries, and provide a roadmap for climate risk training programs.  The Session Two Risk Management guides are available here, here and here.

The first of the two new Scenario Analysis guides offer practical guidance on how to use scenario analysis to assess climate-related financial risks.  The second consists of a database of climate risk data providers, tools, and products, including models, data sets, ratings, hazard maps and frameworks.  The Scenario Analysis guide is available here, and the Data and Tools Providers spreadsheet here.

In the area of Disclosure, the guides present case studies on climate action, as well as guidance by legal professionals on navigating current and future disclosure climate risk obligations.  The new Disclosure guides may be accessed here and here.

The two new CFRF guides focusing on Innovation provide both case study videos and commentary to enlighten firms about the opportunity and upside potential of moving to a net-zero, resilient economy.  The case studies illustrate methods for expanding green financing into the economy by increasing supply on the demand side, by promoting structural changes in the various sectors, and by improving the use of data and metrics for the advancement of innovation.  The innovation guide may be accessed here, and the case study videos here.

The tenth guide, called Climate Data and Metrics, takes the first steps toward unifying data and core metrics in the field of climate risk.  It analyses climate-related data and metrics across five areas: transition risk, physical risk, portfolio decarbonization, mobilization, and engagement, and is available here.

Taken as a whole, the work of the CFRF lays a foundation for UK regulated entities to move their industries forward into an era in which climate risk is a fundamental factor informing the way firms operate.

FCA press release