The Climate Financial Risk Forum (CFRF), co-chaired by the FCA and the Prudential Regulation Authority (PRA), builds capacity and shares best practice across financial regulators and industry to advance our sector’s responses to the financial risks from climate change.
On 29 June 2020, the CFRF published their guide to climate-related financial risk management. The guide aims to help financial firms understand the risks and opportunities that arise from climate change, and provides support for how to integrate them into their risk, strategy and decision-making processes. As part of this, the guide considers how firms can plan for the impact of climate policies over different time horizons and assess their exposure to climate-related financial risks so that they can adapt their businesses in response.
The guide contains 4 industry-produced chapters (Disclosures, Innovation, Scenario Analysis and Risk Management) and 1 summary co-produced by the FCA and PRA. The PRA and FCA have convened and facilitated CFRF discussions but the views expressed in this guide do not necessarily represent the view of the regulators and does not constitute regulatory guidance.
- Guide summary
- Risk Management chapter and Risk Management Annex: list of data and tools providers
- Scenario Analysis chapter
- Disclosures chapter
- Innovation chapter
Since its inception in March 2019, the CFRF has set up 4 technical working groups on disclosure, scenario analysis, risk management and innovation. Each working group is chaired by a CFRF member and supported by an external secretariat. Membership consists of wider industry participants, including trade associations, to ensure the perspective of a broad range of firms is represented. Each working group has planned the approach they propose to take and the outputs they will deliver in terms of practical guidance/ best practice material.
November 2019 meeting
The CFRF met for the third time in November 2019.
At the meeting, the working group chairs presented the draft practical guidance, recommendations and progress to date. The CFRF members discussed the outputs, noting the importance of the following, in addition to points raised in July.
- how to strike the right balance around the granularity / prescriptiveness of the recommendations
- how to consider challenges around data integrity
The meeting also discussed the form of the outputs and the timeline for publishing them, as well as how to get wider industry input on the draft guidance and recommendations in early 2020.
It was agreed that there would be an industry engagement event in January and the CFRF will aim to publish the final version of these outputs in Spring 2020. Beyond publication, the CFRF will continue to develop thinking in these areas.
The CFRF agreed to undertake a second year of work and discussed initial ideas for what future work it may undertake beyond Spring 2020.
The next CFRF meeting will take place in Q1 2020 and will focus on finalising the outputs for publication and determining the CFRF’s next steps.
July 2019 meeting
The PRA and FCA hosted the second meeting of the CFRF in July 2019. At the meeting, the working group chairs presented the draft plans and progress to date. The CFRF members agreed the plans, noting the importance of considering the following:
- how outputs draw upon international best practice
- how to ensure outputs are suitable for firms of different types, sizes and complexity
- how to ensure coordination between the working groups
The meeting also discussed the form of the outputs and the timeline for publishing them, as well as how to get wider industry input into the process. It was agreed that the CFRF will aim to publish these outputs in early 2020.
The next CFRF meeting will take place in Q4 2019.
Background and launch
Climate change and society’s response to it presents financial risks and opportunities that are relevant to the PRA’s and FCA’s objectives. While these risks may form in full over time, they are becoming apparent now. Firms are enhancing their approaches to managing these risks, but face barriers to implementing the forward-looking, strategic approach necessary to minimise the risks. The CFRF aims to reduce these barriers by developing practical tools and approaches to address climate-related financial risks.
The objective of the CFRF is to build capacity and share best practice across financial regulators and industry to advance our sector’s responses to the financial risks from climate change.
It brings together senior representatives from across the financial sector, including banks, insurers, and asset managers. The forum will also include observers from trade bodies to represent a broader range of firms and ensure the outputs of the CFRF are communicated to their members.
The forum is chaired by Sarah Breeden (Executive Director of UK Deposit Takers, PRA) and Sheldon Mills, (Interim Executive Director of Strategy and Competition, FCA). It will meet 3 times a year and will report to Sam Woods (CEO of the PRA and Deputy Governor at the Bank of England) and Christopher Woolard (Interim Chief Executive of the FCA).
|Yorkshire Building Society|
|Legal & General|
|Lloyd's of London|
|RSA Insurance Group|
|Standard Life Aberdeen|
|Green Finance Institute|
|London Stock Exchange Group|