UK financial regulators publish climate change reports

The Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), and the Pensions Regulator, have published reports setting out how climate change impacts each organisation’s responsibilities and the actions they are taking, along with the industry, in response.

The FCA’s report outlines the steps it has seen the financial sector take to mitigate the risks climate change presents and identifies areas, such as retail investments and mortgages, where more needs to be done.

The authority explained that its assessment comes within the context of its developing strategic approach to climate change, which it says will see climate considerations embedded into everything the organisation does, how it operates, its policy choices, and how it supervises and enforces against firms.

“To successfully transition to a net-zero economy requires not only that firms adapt and innovate, but that we regulators do too,” said Nikhil Rathi, chief executive, FCA. “That is why we are leading the effort to ensure there are consistent, trusted standards for disclosure investors can rely on.

“It is also why we are developing a strategy for how the FCA will push industry, using all our regulatory tools, to ensure we can meet the climate change challenge. Our work in partnership with the PRA, TPR and FRC is a vital part of that effort.”

The PRA said that its report sets out the risks from climate change to its objectives and response to them. This includes how climate-related financial risks affect the firms it regulates, its work to support and drive improvements in firms’ capabilities to manage these risks effectively, and its consideration of what further policy action may be necessary.

“Climate change and the transition to net-zero emissions will affect our planet, our economy and our financial system,” said Sam Woods, deputy governor for prudential regulation, and chief executive of the PRA. “As a prudential regulator, it is our job to ensure the financial institutions we regulate are prepared for these changes and able to play their part in supporting the transition.

“Our Climate Adaptation Report sets out how we are going about this, what progress firms have made, and what further work there is to do – from making climate change a core part of our supervisory approach to exploring the relevance of climate change to the regulatory capital framework. I look forward to the PRA continuing this important work.”

The Pensions Regulator said that it would publish guidance clarifying what it will look for from schemes as they assess, manage and prepare to report on climate-related risk and opportunities.

“The pension industry still has much work to do to build resilience and assess climate-related risks and opportunities,” added Charles Counsell, chief executive, Pensions Regulator. “Our adaption report acknowledges that more still needs to be done, but also recognises that practices are evolving, and trustees – and savers – are more engaged with the need to consider climate factors. We remain convinced that a landscape of resilient pensions schemes that protect savings from climate risk is entirely within reach.”

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