Summary
Details
- The United Kingdom
SS5/25 applies to PRA-regulated banks, building societies, PRA-designated investment firms, insurers, reinsurers, Lloyd's managing agents, and insurance groups. Overseas branches operating in the UK are generally outside scope.
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Background
The PRA first established supervisory expectations for climate-related financial risks through Supervisory Statement SS3/19 in 2019. Since then, regulators have gained experience supervising climate risks, while financial institutions have increasingly incorporated climate considerations into governance, risk management, and strategic planning. However, the PRA concluded that progress across the sector remained uneven and that firms needed greater clarity regarding supervisory expectations.
To address these challenges, the PRA issued SS5/25, "Enhancing banks' and insurers' approaches to managing climate-related risks." The statement replaces SS3/19 in its entirety and expands the supervisory framework from four broad pillars to a more detailed structure covering governance, risk management, climate scenario analysis, data, disclosures, and sector-specific requirements.
The statement emphasizes that climate-related risks can affect traditional risk categories such as credit, market, operational, liquidity, underwriting, reserving, reputational, and litigation risk. Rather than treating climate as a separate sustainability issue, firms are expected to incorporate climate-related risks into their existing prudential risk frameworks.
Key Requirements
SS5/25 establishes supervisory expectations across several areas:
Governance: Boards and senior management are expected to oversee climate-related risks and ensure they are considered in strategic decision-making.
Risk Management: Climate-related risks should be identified, assessed, monitored, and integrated into existing risk management frameworks.
Scenario Analysis: Firms should use climate scenario analysis to assess potential exposures and support long-term planning.
Data: Organizations are expected to understand data limitations, address material gaps, and improve climate-related data quality over time.
Disclosures: Public disclosures should be supported by appropriate governance, controls, and risk management processes.
Proportionality: Firms should apply the expectations in a manner proportionate to the scale and materiality of their climate-related risks.
The PRA also provides additional expectations specific to banking and insurance activities, reflecting differences in business models and risk exposures.
Current Status
SS5/25 took effect on 3 December 2025 and immediately replaced SS3/19 as the PRA's primary supervisory guidance on climate-related financial risks. The statement reflects the regulator's evolving approach to climate supervision, drawing on several years of supervisory experience and industry feedback since the publication of SS3/19 in 2019. The PRA has indicated that supervisory engagement will continue as firms implement the new expectations and climate risk management practices mature.
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