News & Opinion

PRA Proposes Stronger Climate Risk Standards for Banks & Insurers

14 July 2025
Ricardo Melo

The Prudential Regulation Authority (PRA) has released CP10/25, an update to its 2019 guidance (SS3/19), outlining enhanced expectations for how UK banks and insurers manage climate-related financial risks.

Key updates include:

  • Stronger governance: Boards must own climate risk strategy and oversight.
  • Scenario analysis: Firms must use climate stress tests to inform decision-making.
  • Data & disclosures: Better climate data and integration into regulatory reporting.
  • Sector-specific guidance: Tailored expectations for banks (e.g. credit risk, ICAAP) and insurers (e.g. ORSA, solvency).

While still principles-based, the PRA is raising the bar, calling for clearer actions, better integration, and more consistent reporting. Firms have until 30 July 2025 to respond to the consultation.

This marks a shift from climate as a “nice to have” to a core financial risk requiring board-level attention and measurable action.

There is growing evidence that climate change is contributing to increased mortality, particularly due to temperature extremes and the PRA expects firms to incorporate climate-related risks into their ORSA processes to develop a range of plausible climate change scenarios to assess their impact.

While cold-related mortality is higher overall, heat-related deaths have surged, particularly during heatwaves like those in 2022. Both very low and very high temperatures had higher mortality risk, with temperatures below negative 5 °C and above 25 °C representing the greatest risk across England and Wales (ONS).

This is an area that warrants serious attention. As climate risk expectations evolve, we are here to help clients stay ahead with tailored advice and practical support to meet the new standards. Please get in touch if you need our assistance with this.