PRA publishes final climate risk management expectations for banks and insurers
The Prudential Regulation Authority (PRA) has published policy statement PS25/25 containing final supervisory expectations for banks' and insurers' management of climate-related risks, replacing supervisory statement SS3/19 in its entirety with effect from 3 December 2025. The new supervisory statement SS4/25 applies to all UK banks, building societies, PRA-designated investment firms, insurance and reinsurance firms, including Solvency II firms and the Society of Lloyd's. Following consultation on CP10/25, which received 59 responses, the PRA has strengthened expectations across governance arrangements, risk management frameworks, climate scenario analysis, data quality and usage, and sector-specific requirements. Key changes include recognition that climate-related litigation risk may constitute a distinct transmission channel alongside physical and transition risks, clarifications on proportionate application of expectations based on firms' climate risk exposure rather than size alone, and updated requirements for integrating climate risks into Internal Capital Adequacy Assessment Process and Internal Liquidity Adequacy Assessment Process frameworks for banks and Own Risk and Solvency Assessment processes for insurers. Firms have six months to conduct internal reviews of their current status against the new expectations and develop implementation plans, with supervisors not requesting evidence of these assessments until after this review period ends.