Written by Zhuan Faraj
On 21 October 2021, the Climate Financial Risk Forum (CFRF) published its second set of guides to help the financial industry effectively manage climate-related financial risks.
The CFRF was established by the PRA and FCA in March 2019 given the importance of climate change to their respective strategic objectives. It published its first guide in June 2020 (“First Guide”), which considers how firms can plan for the impact of climate policies and assess their exposure to climate-related financial risks. The First Guide contains chapters on disclosures, innovation, scenario analysis, and risk management.
This second round of guides (the “Session 2 guides”) build on the four chapters of the First Guide by providing the following:
- Risk Management – (i) guidance for asset managers (as well as insurers, retail banks, and corporate banks) on creating climate risk appetite statements; (ii) case studies on how risk appetite statements can be implemented; and (iii) practical advice on developing and implementing an effective climate risk training programme.
- Innovation – case studies and an innovation commentary report on actionable innovation opportunities to mobilise financial capital and help steward the economy to net zero.
- Scenario Analysis – an implementation guide on how to use scenario analysis to assess climate-related financial risks to inform firms’ strategy and business decisions; and a database containing an illustrative list of climate risk data providers and tools/methodologies.
- Disclosure – case studies on climate action and guidance on how to manage the legal risks of litigation or liability related to climate disclosure across the financial sector.
The CFRF Scenario Analysis Working Group is also developing an online climate scenario analysis narrative tool for smaller firms, which it plans to launch in Q1 2022.
The views in the First Guide and the Session 2 guides do not represent the views of the PRA and FCA and do not constitute regulatory guidance. They are based on current good practice, which will continue to evolve.
The guides can be read in full here.