April 2024
Regulatory expectations around climate-related financial risk continue to be a significant concern for banks. There are already challenging requirements which form part of 'business as usual' supervisory cycles for the PRA and ECB. Supervisors have made it clear that, where banks fall short, they can expect sanctions, and the ECB has begun to put this into practice. Regulatory policy in this area continues to be a topic for discussion and is expected to evolve as climate risk modelling approaches and banks' capabilities mature.
SS3/19, the PRA’s Supervisory Statement on Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change, is now five years old and the PRA has committed to updating it this year. Although the PRA was one of the first prudential regulators to set expectations on climate risk, it has arguably been overtaken by its European counterparts both in terms of granularity of expectations and approach to enforcement. The ECB's 2020 Guide (PDF- 712KB) on climate and environment-related risks has already been updated in parts and recent speeches suggest that further enhancements are likely. The EBA is consulting (PDF - 608KB) on proposals that would deliver under its CRR3 and CRD6 climate and environment-related mandates. At a global level, the BCBS continues to explore climate and broader sustainability impacts, and the FSB's 2024 workplan continues its work on coordinating international efforts to address climate-related financial risk.
In this article, KPMG in the UK looks at ten areas where banks are likely to see continued focus or new developments in 2024. For more detail on the expectations already issued by the PRA, ECB and BCBS.