The Prudential Regulation Authority (PRA) has published its third Climate Change Adaptation Report in response to an invitation from the Department for Environment, Food and Rural Affairs to participate in the fourth round of climate change adaptation reporting. The report summarises how the PRA has responded to climate risks to its operations and objectives since October 2021, assesses banks’ and insurers’ progress in managing climate-related financial risks, and signals a planned consultation later in 2025 on updating Supervisory Statement 3/19. Supervisors have observed that firms have taken positive steps to implement SS3/19, but embedding is uneven and further progress is needed across all firms. The report highlights areas where improvement is required, including the consistency of governance arrangements, the maturity of risk management tools and climate scenario analysis, firms’ ability to articulate the objectives and calibration of scenario exercises, and persistent climate data gaps and contingency approaches. It also reiterates expectations that firms appropriately reflect climate risks in Internal Capital Adequacy Assessment Processes or Own Risk and Solvency Assessments, and notes continued supervisory focus on accounting for climate risk, including major banks’ capabilities to capture impacts in Expected Credit Losses. The PRA expects to issue a consultation paper in 2025 on a draft update to SS3/19, intended to consolidate existing PRA climate-related guidance and provide greater clarity on the outcomes expected of firms. Once the revised supervisory statement is finalised, the Climate Financial Risk Forum will, in due course, support industry collaboration to update and build on its guidance and tools in line with the revised expectations.

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