UK: CFRF publishes second set of guides to help financial industry manage climate financial risks

The Climate Financial Risk Forum (CFRF), which is chaired jointly by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), has published a second set of guides to help financial firms in the UK understand and manage the risks and opportunities from climate change. 

The guides, which have been written by industry for industry, focus on:

• Risk Management – to help retail banks, corporate banks, insurers and asset managers produce and implement risk appetite statements that integrate climate-related financial risks. It also summarises firms’ training needs.
• Scenario Analysis - contains practical examples of how firms can incorporate sector specific points when developing an effective approach to scenario analysis. The CFRF scenario analysis working group is developing an online climate scenario analysis narrative tool to support smaller firms, which it intends to launch in Q1 2022.
• Disclosure - contains a series of disclosure case studies and a paper highlighting the legal risks associated with publishing climate-related disclosures and how those risks can be managed. Linklaters has contributed to the outputs as a member of the Disclosures Working Group.
• Innovation - identifies practical opportunities to mobilise financial capital and steward the net zero transition.
• Climate Data and Metrics - recommends five areas where climate-related metrics could be employed (transition risks, physical risks, portfolio decarbonisation, mobilising transition finance, and engagement).

These guides (also known as “Session 2” guides) build on those published in July 2020 (the “Session 1” guides). The guides can be accessed here. 

The recommendations in the guides represent good practice drawn from the experience and inputs of a wide range of different institutions; they do not constitute financial or professional advice (nor regulatory guidance) and should not be relied upon as such. 

The guides aim to support firms as they adapt their risk, strategy, disclosure and decision-making processes. In the words of Sam Woods, the CEO of the PRA, climate risks “demand an ambitious and strategic response from firms”.