SS5/25 - Defending & Validating your Climate Risk Assessment - 10 priorities in under 10 minutes.
On this week's episode, hear from Abhay and Aidan as they unpack the top 10 priority actions organisations, particularly insurers and banks, should be focusing on under SS5/25 to move beyond compliance and towards defensibility.
Transcript
Abhay Srivastava: Hi, everyone. Thank you for joining us today at this podcast.
The key message I want to leave you today is pretty simple. SS525 is no longer about ESG compliance. It is about embedding climate risk into core financial decision making. And we all know that the third June gap assessment deadline has now passed.
The regulatory tone has shifted to a much more direct question, which is, you have completed the gap assessment, but can you evidence and get on with it?
Today, we'll walk through the ten priority areas that insurers must now focus on, and more importantly, what those priorities mean in practice.
And before we do, a quick introduction.
My name is Abhay Srivastava, I work as partner and head of ESG and Weightmans, and I'm joined by my colleague.
Aidan Thomson: Thank you very much, Abhay. Great to be here today. As I'm Aidan Thompson, I'm a partner at Weightmans, and I'm a specialist in environmental regulation and liability law.
So to start today, just to say, as a backdrop, there's a big shift that's been going on in recent weeks and months from compliance with the requirement to produce a gap assessment to execution, getting on with the things that you've identified.
And just to start with by setting the context, there are three fundamental shifts that have been taking place as a backdrop to SS525.
First of all, a shift from environmental and social narratives towards financial stability considerations. That's what SS525 is all about.
And also a shift from qualitative considerations to quantified considerations of climate and quantified decision making on climate related issues.
And finally, a shift from the gap assessment stage to demonstrable execution by, companies or organisations that are covered by, SS525 towards demonstrable execution.
And today, everything that we cover, has to be viewed through the lens of these fundamental shifts that are taking place.
So Abhay, getting into the serious stuff now, are you able to outline for everyone the top priorities for insurers and banks arising from SS525?
Abhay: Sure, let me start with the first item, which is about board governance and accountability. This is about starting things from the top. Regulators clearly expect senior management responsibility, competent resources, active board level oversight, and the integration of climate considerations into risk appetite. This is not simply a reporting issue. It is fundamentally a governance issue.
Aidan: Okay. And just one question there. Just you mentioned competent resources. That sounds important. Can you explain what that means a little bit more?
Abhay: Sure, Aidan. I think a holistic competency framework forms the backbone of climate risk management for any organisation. And based on my understanding of the sector, there is some work to be done. We see very high levels of generic self assessed competency test being deployed across various levels in a form, which to me aren't effective enough in developing people to manage the expectations described in SS525. So I I firmly believe that there is some work that is needed to be done to prepare workforce that would just not look but act on climate related risk.
Aidan: Okay, well, thank you for that. That's the first priority area. That's right. What about the others?
Abhay: Second one being materiality and risk assessment. So firms are expected to have a robust board approved financial materiality assessment covering their physical risk, transition risk, and litigation risk. The pre requirement is defensibility, not just completeness.
And if I move on, the third one would be about integration into the core risk framework. One of the most important expectations is that climate risk must be integrated into the core risk framework, rather than treated as a standalone ESG layer. Embedding climate considerations into underwriting, reserving, operational risk, and capital processes such as ORSA. And if climate risk is not reflected in these areas, it will not be viewed as embedded.
So, climate risk is not reflected in these areas, it will not be viewed as embedded.
Aidan: Alright, what about the, other priority areas?
Abhay: Sure, I think number four is about having a risk appetite and decision making process.
As far as SS525 is concerned, firms must translate climate risk into clear limits, tolerances, and trigger points. This should feed directly into underwriting and pricing decisions. This is where regulatory expectations move from theory into action.
Aidan: Okay. Okay, next.
Ahbay: Following on from appetite and decision making comes the climate scenario analysis, Aidan.
Climate scenario analysis is now a core capability rather than a one off exercise. Firms are expected to develop multi horizon scenarios and link outputs to losses, capital requirements, and valuation assumptions. More importantly, scenario outputs must inform decisions rather than sit passively in reports.
Aidan: Okay. Going on from there, I suppose that that gives rise to the next one on your list.
Abhay: That's right. Okay. Data strategy and data quality, something we have talked about a lot.
So data remains a major pressure point.
Funds must address key data gaps and move towards more granular exposure data and forward looking indicators.
To be honest, without credible data, the broader framework cannot stand up to scrutiny.
Aidan: Okay. Okay.
Abhay: And moving on, if I were to add the layer of management information and reporting, boards are required to have decision useful MI, including clear insights into risk exposure, scenario outcomes, and progress against strategic plans.
The test is straightforward. Does this information influence decision making? That's the key question these organisations must be answering.
Aidan: Okay, but then I suppose you come to the next one on your list disclosures.
Abhay: Right, a big one to be honest and it was a relief to see that this has been covered in SS525, which is about having climate related disclosures that must be aligned and consistent across all reporting frameworks, including SFDR, TCFT and the UK SRS. Regulators are increasingly focused on identifying inconsistencies, which are now viewed as a significant red flag.
Aidan: Okay. Okay.
So, I suppose getting to the end now, two more that you want to raise. What are they?
Abhay: That's right. The next one being strategy and product design. This is where organisational maturity becomes evident. Firms should demonstrate a climate linked portfolio strategy, changes to underwriting appetite, and evidence of product innovation.
The expectations is not only to manage risk, but to respond strategically. That's what has been clearly mentioned in SS525.
Aidan: Yeah.
Abhay: And the last one being the day two remediation plan. I mean, the third June deadline, the most critical requirement is a credible and prioritised remediation roadmap. This should include clear timelines, defined ownership, allocated resources, and evidence of execution progress. This is where supervisory focus will increasingly be directed.
Aidan, that's enough of me talking. If I turn the table and ask you, what are regulators really testing?
Aidan: Well, stepping back, I think, regulators are ultimately looking at three, key questions, and first of all, they're wanting to know whether climate risk is embedded in financial decision making.
And then I suppose the second thing is that, you know, they're not really just wanting to know that climate considerations are being factored in, they want to know that it's being supported by robust and defensible data and analysis. So they're on the lookout for that as well.
And the third thing is that they want to see that you're on a journey that you're able to demonstrate tangible progress and execution towards eliminating those gaps that you've established as part of your gap analysis?
And if the answer to any of these questions is no, or is a little bit hazy, I'll be pretty sure that this is where regulatory scrutiny going forward will be focused.
Okay, so to close, just to leave everyone with one final message, which is that SS525 compliance is no longer about producing documents, it's about demonstrating that climate risk is shaping real business decisions and the firms that will succeed are those that integrate these principles quickly, build credible data and analytics capabilities around climate, demonstrate tangible progress going forward, and crucially can defend all of this with a paper trail and, with clear evidence.
Abhay: Thank you, Aidan, and thank you to our listeners for tuning in. If you need to chat with us about SS525, how you are getting on and if there is anything you would like to discuss with us, please feel free to reach out to me or to my colleague, Adian here. Till then, thank you for listening.
Thank you.