PS25/25 – Enhancing banks’ and insurers’ approaches to managing climate-related risks – Update to SS3/19

What Changed

• The main changes in SS5/25 from SS3/19 and CP10/25 responses include:
• Proportionate application clarification: New 'Overarching aims' section in Chapter 3 explains how firms should tailor expectations to their climate risk exposure, business size, and complexity via a two-step process (assess materiality, then respond)
• Governance strengthening: Boards and senior management must actively oversee climate risks, embedding them in strategy and ensuring accountability.
• Risk management enhancements: Integrate climate risks into existing frameworks/risk registers (supplementary sub-registers allowed); 'accept, manage, avoid' is suggestive, not mandatory; aligns with SS1/21 on operational resilience.
• Climate scenario analysis (CSA) advancements: Firms must use CSA strategically for decisions; flexibility on number/type of scenarios, reverse stress/sensitivity analysis, and longer horizons (narrative over quantification); horizons align with ICAAP
• Data quality improvements: Firms must assess and address gaps in reliable, granular, forward-looking data for decision-making.

Suggested Considerations

• Conduct gap analysis against SS5/25 within 6 months and remediate (e.g., update governance, risk frameworks, CSA processes).
• Integrate climate risks into board oversight, strategy, risk registers, ICAAP/ILAAP (banks), ORSA/stress testing (insurers), and financial reporting.
• Perform CSA exercises commensurate with exposures, using suitable scenarios to inform decisions; enhance data quality and disclosures.
• Document proportionate application (two-step process: materiality assessment, risk response); leverage existing structures where robust.
• Ensure senior accountability and alignment with standards like SS1/21.

Key Dates

Who is Affected