Final countdown for UK financial firms as new climate risk rules loom

The supervisory statement from the Bank of England’s Prudential Regulation Authority means companies under its remit have until 3 June to complete their reviews and set out how they intend to meet strict new climate risk policies or face enforcement action.

It means firms must now meet much stronger restrictions over how they should manage and identify climate change related risks in the race for net zero.

Hayden Morgan, a sustainability expert with Pinsent Masons, said the regulations – the first meaningful change since 2019 – meant companies could not afford to delay in preparing for the new regime.

“Under the terms of the new supervisory statement, climate‑related risks are now regarded as a prudential risk and are expected to be fully embedded within firms’ approach to risk management, capital and solvency assessments, and in their governance and board oversight structures,” he said.

“Along with financial penalties, firms that fail to meet these new expectations are facing supervisory intervention and having governance remediation imposed on them,

“Governance looks to be the PRA’s primary tool for enforcement, so with uneven adoption since 2019, it will put firms that have not prepared for the 3 June deadline firmly in the regulator’s spotlight.”

The new statement marks the PRA’s transition from awareness‑raising to embedded prudential supervision, bringing clarity and specificity to climate risk requirements.

Under SS24/25, management will be required to show clear approaches for dealing with climate related challenges, including highlighted inclusion of climate policy within their risk management frameworks, while an emphasis will be put on providing increased and detailed levels of data for risk management planning

Disclosure reporting is expected to be aligned with international standards but also consistent with internal risk management requirements, with potential issue reporting embedded throughout the risk register.
Banking and insurance firms will face extra expectations in disclosing risk and opportunity during investor assessments, to enable better tracking of transitional sectors.

Built into the rules, however, are mitigations for proportionality when it is defensible, and driven by materiality of exposure rather than firm size – with companies expected to justify and revisit assessments as data availability evolves.

“Companies need to be ready and ensure they’ve had expert advice in preparation for the deadline,” added Morgan. “Litigation risk is no longer just a disclosure issue – it’s a balance‑sheet issue.”