UK regulators the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (PRA) hosted the first meeting of the Climate Financial Risk Forum (CFRF), which aims build capacity and share best practice across financial regulators and industry to advance financial sector responses to financial risks posed by climate change.

“Climate change and society’s response to it presents financial risks that are relevant to the PRA’s and FCA’s objectives,” stated the regulators. “While these risks may crystallise in full over longer-time horizons, 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.

Three meetings per year

The forum brings together senior representatives from across the financial sector, including banks, insurers, and asset managers. It will meet three times a year and will report to Sam Woods, CEO of the PRA and deputy governor at the Bank of England and Andrew Bailey, (CEO of the FCA).

Membership is representative of the UK financial sector, including firms of varying size, business model, and maturity of approach to climate-related risks. The full list of members is as follows:

Banks: BNP Paribas, HSBC JP Morgan, RBS, Yorkshire Building Society
Insurers: Aviva, Legal & General, Lloyd’s of London, RSA Insurance Group, Zurich
Asset Managers: BlackRock, Hermes, Invesco, Schroders, Standard Life Aberdeen
Others: Green Finance Institute, London Stock Exchange Group

Andrew Bailey commented: “The first forum meeting today was an important step in tackling a major threat to the future stability of the financial system. The FCA and PRA have been working closely together, combining and building on our joint knowledge, to develop an approach which will enhance the UK financial system’s resilience to climate change.

“The CFRR will seek to encourage approaches in the financial sector, managing the financial risks from climate change as well as supporting innovation in green finance.”

Sam Woods added: “Climate change has the potential to create significant financial risks for the firms the PRA regulates. The challenge we face in mitigating these risks is unprecedented, and we need to begin to act now if we are to ensure an orderly transition to a low-carbon economy.

“The establishment of the CFRC will provide a platform through which the PRA, FCA and industry can share experience and build expertise as we begin this work.”

At its first meeting, the forum decided to set up four working groups to focus on risk management, scenario analysis, disclosure, and innovation, and will produce practical guidance on each of the four. The final outputs will be shared with industry more widely.