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
A webinar event was held on 29 June 2020 to mark the launch of the guide. See the video of welcoming remarks from Andrew Bailey (Governor of the Bank of England) and Christopher Woolard (Interim CEO of the FCA).
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 2020 meeting
The FCA and PRA hosted the fifth meeting of the CFRF in November 2020.
The co-chairs welcomed 1 new member organisation, the Universities Superannuation Scheme (USS) and 2 new observers, The Pensions Regulator (TPR) and the Financial Reporting Council (FRC).
Since the publication of the CFRF Guide in June and the last Forum meeting in July, the working group chairs, members and secretariats have been considering how they can further their respective topics of risk management, scenario analysis, disclosure and innovation. The CFRF noted the importance of progress in the development and understanding of climate data and metrics. Given this, it was decided that data and metrics should be a thematic topic that is addressed by all Forum working groups in the next phase of work. The Forum discussed each working group’s plans and the progress made to date. There was a specific discussion on the extent to which plans cater for the needs of smaller financial firms and how engagement with these firms would be undertaken over the coming period.
The Forum noted the importance of the 26th UN Climate Change Conference of the Parties (COP26), a major international climate summit being hosted by the UK in November 2021. It was agreed that the CFRF should explore ways that it can support the COP26 aims.
The next CFRF meeting will take place in Q1 2021 where a programme of deliverables will be agreed and next steps to engage with external stakeholders ahead of COP26 will be discussed.
July 2020 meeting
The FCA and PRA hosted the fourth meeting of the CFRF in July 2020. The co-chairs recognised all the hard work of the Forum members, in particular the working group chairs, members and secretariats, since the last Forum meeting in November leading up to the publication of the CFRF Guide on 29 June 2020. The Forum discussed how to publicise and promote use of the Guide by the financial services industry.
To maintain momentum in its early years, the Forum agreed that all current members would continue into the second year, and that membership would be widened to include a small number of asset owners alongside other regulators that would be invited to observe.
The Forum then went on to discuss the strategy for the second year of work.
The Forum agreed that the four existing working groups would continue with the current chairs and secretariats. These working groups address the topics of: risk management, scenario analysis, disclosure and innovation. Once the workplans are agreed between the regulators and the working group chairs, the working group membership will be refreshed to ensure there is an appropriate variety of skills and experiences around the table; this is likely to include a mix of existing and new members.
There was broad agreement that the focus of each working group would be two-fold:
- To undertake a thematic piece of work on metrics, data and methodologies; and
- To build on the Guide, by progressing and refining the recommendations, particularly highlighting how these approaches can be effectively implemented by firms.
The next CFRF meeting will take place in Q4 2020 where the workplans and approaches will be agreed and possible next steps to support COP26 – the international climate summit being hosted by the UK in November 2021 – will be discussed.
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 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 Nikhil Rathi (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|