Podcast: Climate Risk regulations

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Introduction by Abhay: Its 17 February 2026, holidays are officially in the rear-view mirror and for anyone in the UK’s financial and insurance sector, the ground has shifted beneath our feet. The Bank of England’s new supervisory statement popularly referred as SS5/25 dropped in December 2025. If the old guidance SS 3/19 was a gentle nudge, SS 5/25 is a firm shove as it changes the entire conversation from ‘are you thinking about climate risks?’ to ‘prove it with evidence’. 

To dissect the requirements set out in SS 5/25, I welcome – Aidan Thomson from Weightmans, Deon Dreyer, Damien Burke and Cormac Bradley from Broadstone. Aidan, an environmental lawyer has been advising the insurance sector on environmental and climate related issues. Deon comes with multi-year experience on climate related risk management, climate data modelling and reporting in the financial sector along with his colleague, Damien who works extensively with the financial institutions. Last but not the least, we will get to hear from Cormac who regularly advises insurance and reinsurance companies particularly the underwriters, on climate risk integration.

Abhay to Deon: If I pose the first question on behalf of our listeners, Deon, please can you describe the purpose and scope of SS 5/25?

• Supervisory Statement 5/25 sets out the PRA’s updated expectations for how UK banks, insurers and PRA supervised investment firms should manage climate related financial risks. The new standard is far more detailed, more prescriptive and much clearer about what ‘good’ looks like.
• At its core, SS5/25 strengthens expectations across governance, risk management, scenario analysis, data and disclosures. It makes it clear that climate risks can create real solvency, liquidity and business model risks — so this is about protecting balance sheets, not just meeting sustainability objectives. The PRA wants firms to embed climate risk into their existing risk frameworks — credit, market, operational — rather than treating it as a standalone exercise.
• The scope is wide: it covers all PRA regulated banks, building societies, insurers and designated investment firms, including both Solvency II and non Solvency II insurers. And importantly, proportionality is based on risk exposure, not firm size.

Overall, SS5/25 signals a shift from climate risk awareness to real, evidenced implementation of climate risk.

Abhay: Thanks Deon, let us now look at the key features of this Supervisory Statement. 

Abhay to Aidan: Boards are expected to embed resilience into strategy, with clear accountability for senior management functions. What can you tell our listeners about the governance related aspects of SS 5/25?

Governance & Accountability

• A chunk of 5/25 deals with expectations for the governance of climate related risks.
• While old guidance has been about making firms talk about climate risks, this one from BoE is about embedding consideration of climate risks into the core businesses.
• There have to be defined responsibilities for board, committees and exec management in managing climate risk.  It’s OK to adapt existing structures for this purpose.
• Assignment of ‘individual responsibility’ within leadership (and “at an appropriate level of seniority”) on specific climate related risk issues is needed, and make meaningful via the appraisal and reward system.
• Boards need to get into a position to competently review and agree what the risks are  and the risk appetite.  Not as a one off – this has to be done periodically.
• Getting the right governance in place isn’t going to happen overnight. Depending on progress to date, there may need to be knowledge management and training of board, senior management and all concerned people

Abhay to Aidan: Thanks, very important for all parties under scope, Aidan, please can you also tell us about the timelines that listeners should be mindful of, while working to align their practices with SS 5/25 requirements?

Compliance Timeline

• 3 June 2026: this is a date circled in red on every risk and legal lead’s diary right now, a very real clock. The regulator expects an internal review of current status in meeting the expectations set out in this SS 4/25, and prepare an action plan on gap areas including updating of internal risk assessments and proposed climate action plans.
• The regulator may not come knocking doors on 4 June. The in-scope firms may receive an inquiry let’s say in September about what they have done in June’26. And at that time they need to be able to evidence to the regulator actions taken on gap assessments and on findings thereafter!

Abhay: Thanks Aidan, very useful information for our listeners to keep track of timeline. 

Abhay to Cormac: Once firms have stepped back and reviewed their governance around climate related risks, the obvious question becomes: what do they actually do next? Cormac, from your perspective, what is the PRA really expecting insurers to focus on under SS5/25, and how should firms be thinking about embedding climate risk into their existing risk management and decision making frameworks?

Response: SS5/25 isn’t about building a brand new climate risk framework or adding another layer of governance. At its core, the PRA is saying something much simpler and more demanding: climate related risks need to be treated like any other material financial risk - identified properly, assessed for materiality, embedded into existing risk management, and reflected in decision making. 

For insurers, those risks arise through physical, transition and liability channels, affecting claims, reserving, investments, underwriting and solvency. What makes climate risk different is that it’s systemic, hard to pinpoint, and both foreseeable and deeply uncertain, with no true historical analogue. That’s why scenario analysis is so prominent, and why firms need to start with a structured gap analysis across their existing frameworks rather than a wholesale redesign. 

Most risk management frameworks already have natural cycles, so early engagement allows much of this to be done through existing structures, supported by training and cultural change across Boards, executives and business lines. Ultimately, SS5/25 is about proportional, credible integration with proportionality driven by risk exposure, not firm size. So that climate risk genuinely informs decisions rather than sitting on the sidelines.

The latest temperature data suggests we’re on track to exceed the Paris 1.5 degree target by the end of this decade, well within the horizon of most ORSAs. So if climate risk still feels abstract, or hard to turn into a plausible scenario, it’s worth remembering this isn’t a future problem. We’re already living through it.

Abhay: Thanks Cormac, very important point on ORSAs and focus on climate risk into organisations’ business strategy. 

Abhay to Damien: Going to the next expectation on Climate Scenario Analysis (CSA) and operational resilience, what would be your advice to the listeners on tackling this subject?

Operational Resilience & Scenario Testing

• Annual testing should incorporate climate stress scenarios (e.g., extreme weather, transition risks). Scenario analysis should have clear objectives with the rationale for the range of selected scenarios clearly defined and “agreed by the board”
• Contingency plans must address climate-driven systemic shocks - the impact of climate-related risk drivers from the perspective of both their general operations and their ability to continue providing important business services, including those supported by outsourcing and third-party arrangements, in severe but plausible scenarios
• Commentary about limitations of CSAs and that regulators expect use of judgement where there are shortcomings in modelling data, etc

Abhay to Damien: Thanks Damien, what do you think are some specific considerations for Banks and Credit Providers?

Response: Well Abhay, in addition to SS5/25, the PRA issued a Dear CFO Letter in September 2025 following a thematic review of accounting for Expected Credit Losses (ECL). The feedback suggested a range of approaches had been adopted in relation to how climate risk had been incorporated into these calculations but I think it is fair to say the overall view was that everyone had more to do.

Interestingly, the majority of these models under IFRS9, the accounting standard for ECL, are flexible enough to incorporate multiple forward looking scenarios. Whilst these have previously focused on macro-economic variables, like GDP or unemployment rate, they could be adapted to explicitly consider climate related risks. 

Abhay: Thanks very well described! 

Abhay to Deon: Important part of SS 5/25, the disclosure requirements. Deon, can you tell us about the regulator’s expectations from the firms on disclosing their progress and challenges?

• Disclosure is a very important part of SS 5/25. The PRA is very clear that firms must be able to demonstrate—not just describe—how they are managing climate related financial risks. So the focus is on decision useful information, not boilerplate reporting.
• Internally, firms are expected to have strong reporting processes so that Boards receive the right climate risk information at the right time, including ad hoc reporting when any climate related risk appetite thresholds are breached.
• Externally, SS5/25 expects clear, transparent disclosures that explain a firm’s governance, strategy, risk appetite and resilience to climate risks. Those disclosures should be aligned with the UK’s sustainability reporting standards, including the TCFD and ISSB frameworks.
• Importantly, the PRA wants honesty about limitations. Firms must identify and disclose data gaps, modelling uncertainties and any reliance on proxies or judgement. SS5/25 recognises that climate data is imperfect, but it requires firms to be explicit about that imperfection and to reflect it in their risk management and disclosures.
• Finally, proportionality is based on risk exposure, not size. So even smaller firms with material climate exposures need to produce meaningful, transparent disclosures. And these disclosures should increasingly link to scenario analysis where the PRA views scenarios as a core tool for forward looking resilience. 

Abhay: Thanks Deon, So -

• Good governance on climate risks management is the direction of travel
• Integration of climate-related financial risks into operational resilience frameworks is must do.
• Orgs should review third-party engagements on climate risks preparedness
• And they must align regular business reporting with sustainability disclosures

Many thanks, Damien, Cormac, Aidan and Deon for dissecting SS 5/25 for our listeners.

To our listeners: Please reach out to any of us to discuss what the regulators expect you to do as per SS 5/25. If you have already started the gap assessment which the regulator expects by June and would like to connect with others undertaking this very compliance action then please come and join us at the in-person event on 16 April at our London office. We hope to bring out case studies and real-life experiences and challenges in undertaking this initial gap assessment. Bye for now!