On October 15, the UK Financial Conduct Authority (FCA) published a discussion paper (Discussion Paper) on climate change and green finance. On the same day, the UK Prudential Regulation Authority (PRA) published a consultation paper (Consultation Paper) on a draft supervisory statement (Draft Supervisory Statement) on enhancing the approach of banks and insurers to managing the financial risks from climate change.
In its Discussion Paper, the FCA sets out:
- how the different impacts of climate change could impact the FCA’s long and short-term objectives;
- some of the opportunities and risks the transition to a low-carbon economy presents to the United Kingdom’s financial services markets; and
- specific actions the FCA will take in the near-term to ensure that markets function well and deliver good outcomes for consumers, such as enabling competition and market growth for green finance.
In its Draft Supervisory Statement, the PRA sets out its proposed expectations regarding how firms:
- embed their consideration of the financial risks from climate change in their governance arrangements;
- incorporate the financial risks from climate change into their existing risk management practice;
- use (long-term) scenario analysis to inform strategy setting, risk assessment and identification; and
- develop an approach to disclose the financial risks from climate change.
The FCA and PRA issued press releases welcoming each other’s respective Discussion Paper and Consultation Paper. They also noted that they are establishing a climate financial risk forum to coordinate action, share best practices, help the financial sector manage the financial risks from climate change and support innovation for financial products and services in green finance. The forum will involve industry representatives, technical experts and other stakeholders. Membership is expected to be finalized by the end of November, having a first meeting in early 2019.
The deadline for responses to the Consultation Paper is January 15, 2019 and the deadline for responses to the Discussion Paper is January 31, 2019.