Legal & Regulatory News

PRA and BoE Dear CEO letter on supervision of climate-related financial risk

21 October 2022

On 21 October 2022, the UK's Prudential Regulation Authority (PRA) and the Bank of England (BoE) released a Dear CEO letter (the Letter) on the thematic feedback on the PRA's supervision of climate-related financial risk and the BoE's Climate Biennial Exploratory Scenario exercise.

The Letter highlights the expectation that firms' financial reporting-related priorities should include enhancing their climate-related data, scenario analysis, modelling capabilities, governance and control. The Letter indicates that compliance with these expectations will be assessed on an ongoing basis, and firms should continue to demonstrate effective management of climate-related risks through regular supervisory engagement and reviews.

In addition, the Letter highlights examples of effective practices in Annex A of the Letter.  Examples of effective practices cited include the following:

  • Boards and Executives should be able to show that they have understood how their firm was integrating climate considerations into their decision making across business strategies, planning, governance, and risk management processes;
  • Firms should have a counterparty engagement strategy to inform firms about how their counterparties will look to manage climate exposures;
  • Firms should be able to explain how any material climate risks are appropriately capitalised and provide contextual information to allow a reader to understand their analysis of climate risks and capital; and
  • Firms should be able to satisfy supervisors they have embedded scenario analysis into their risk management and business planning processes.

Click here to read the Letter.

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