PRA threatens use of more supervisory powers over climate risk management targets
PRA chief executive, Sam Woods, said more work was needed by all banks and insurers
The regulator says all insurers need to make more progress in embedding climate risk into governance processes
The Prudential Regulation Authority (PRA) has said it is willing to use more of its supervisory powers if insurers continue to fall behind its climate risk management expectations.
Sam Woods, chief executive of the Prudential Regulation Authority (PRA), said while governance of climate risk had advanced in most businesses, more work was needed by all banks and insurers.
Woods said businesses that had not made enough progress in addressing climate risk would be expected to produce a roadmap for improving their risk management processes.
He added: “If deemed appropriate, we may exercise the use of our wider supervisory toolkit.”
The comments come 10 months after the regulator started actively supervising firms against its expectations, which the PRA outlined in a 2019 supervisory statement.
In a letter to chief executives outlining the findings of the PRA’s supervisors, Woods acknowledged that banks and insurers have taken “concrete and positive steps” to meet the bank’s expectations.
But, he said: “While some firms have made considerable progress, the levels of embedding [climate change risk management] vary and the assessment of supervisors is that further progress is needed by all firms.”
The PRA said that in some cases, the lack of an effective risk management framework was compromising boards’ ability to managing climate risk.
It added that, in many cases, work was still required to finalise the embedding of climate risk in risk management frameworks, risk appetite statements and committee structures.
“Consequently, most firms’ work on climate risk management and mitigation (including capital allocation) was still maturing,” it said.