Commenting on today's supervisory statement from the Prudential Regulation Authority (PRA), Jon Williams, sustainability & climate change partner at PwC and member of the FSB's Task Force on Climate-related Financial Disclosures said:
"It's now clearer than ever that failing to take comprehensive action on climate risk is not an option for banks or insurers. The PRA's supervisory expectations reflect the fact that this is a top and emerging risk issue for firms and the wider financial system, and needs to be managed accordingly.
"Board members will be increasingly expected to anticipate how climate-related risks are likely to impact their businesses and to ensure accountability throughout the organisation. Last September’s TCFD Status Report showed that many boards are not sufficiently equipped to ask the right questions of senior management on climate risk.
"It's encouraging to see some banks and insurers committing to decarbonisation, but this is only a first step. Climate-related risks are complex and could crystalise across multiple business lines across organisations. The PRA is therefore right to expect firms to take a holistic approach in identifying and managing these types of risks.
"Complexity can make addressing climate risk seem daunting but this needn't be the case. Start by making sure the right governance is in place, then use scenario analysis to anticipate risks – and the opportunities - the business may become exposed to. Finally think about how you quantify, the targets you want to set - and, importantly, how you communicate all of this to your investors."
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