UK: PRA writes to CEOs of banks and insurers warning of climate focus in 2022

In January 2022, the Prudential Regulation Authority (PRA) sent “Dear CEOs” letters to banks and insurers setting out its supervisory priorities for 2022, in which climate change is named as one of the top priorities this year. 

The letters (see here, here and here) note that, while some firms have made good progress towards meeting the PRA’s expectations set out in Supervisory Statement 3/19, progress has not been consistent. The PRA expects to see further work over the coming months:

“We expect firms to take a forward-looking, strategic and ambitious approach to managing climate-related financial risks. This approach should be proportionate to the scale of the risks and the complexity of a firm’s operations. From 2022, we will incorporate supervision of climate-related financial risks into our core supervisory approach... The PRA will pay particular attention to how firms quantify climate related risks and incorporate those risks into business strategies, decision-making, and risk-taking.”

The PRA also notes that some firms are focusing too much on the opportunities – and not the risks – of climate change, which the PRA says “requires action now”. 

For more information on ESG risks for banks, see our blog post: ESG: potential liability and litigation risk for banks.