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UK regulators consult on climate risk

The UK’s Prudential Regulation Authority (PRA) has issued a consultation paper on ways insurers and banks should manage financial risk arising from climate change.

Appropriate governance, risk management, scenario analysis and disclosure are the main areas addressed.

For governance, board-level engagement and accountability are expected.

“The PRA’s desired outcome is that firms take a strategic approach to managing the financial risks from climate change, thereby mitigating the associated risk to the PRA’s primary objectives,” the paper says.

The Association of British Insurers has backed the consultation.

“Insurers are often on the front line dealing with the results of rising temperatures and extreme weather, so have a real stake in addressing climate change and are well aware they have a role to play in this,” Head of Prudential Regulation Steven Findlay said.

“We’re keen to contribute to the PRA’s consultation on this topic.”

The consultation closes on January 15.

Meanwhile, the Financial Conduct Authority (FCA) has issued a discussion paper setting out areas of greater regulatory focus to manage global warming effects.

It is seeking input on climate change and pensions, competition and market growth for green finance, investor disclosure, and new requirement for financial services companies to report on climate risk management.

“Climate change presents a disruptive and potentially irreversible threat to the planet,” FCA CEO Andrew Bailey said.

“The FCA can play a key role in providing more structure and protection to consumers for green finance products and ensuring the market develops in an orderly and fair way that meets users’ needs.”

Consultation closes January 31.