Predicted updates on PRA SS3/19 - What should the financial services industry expect?

The Prudential Regulation Authority (PRA) published SS3/19 in April 2019[1]. It addresses the financial risks posed by climate change, aiming to improve overall climate risk management and foster a long-term strategic approach for firms. Additionally, the PRA expects a firm’s response to the financial risks from climate change to be proportionate to the nature, scale, and complexity of its business.

The SS3/19 statement is relevant to all UK (re)insurance firms, including those under Solvency II, as well as banks, building societies, and PRA-designated investment firms.

The adoption of SS3/19 in the UK has led to many firms enhancing their approaches to managing climate-related financial risks[2]. However, the PRA has noted that, while improvements have been made, a fully strategic approach that considers long-term impacts is still lacking in many cases[3]. One of the main limitations of SS3/19 was its high-level nature and lack of detailed, binding requirements for firms.

Consequently, the PRA committed to update SS3/19[4] in Q1 2024[5]. In its July 2024 climate-related financial disclosures[6], the Bank of England (BoE) stated that “The revisions are expected to provide clarity to firms and build on the SS3/19 approach. The work is expected to consolidate previous Bank feedback to firms, such as through the Dear CEO letters, draw on Bank analysis since April 2019 and generally align with relevant international standards from the Basel Committee on Banking Supervision (BCBS) and the International Association of Insurance Supervisors (IAIS).”

Besides, in January 2025, the PRA published its 3^rd edition of the Climate Change Adaptation report[7] where it tackles a bit more the content of the SS3/19, stating that “In this report we look at the steps taken by banks and insurers since 2021 to respond to the impacts of climate change, and we set out how our regulatory work has evolved in that period. […] The update will represent an important development in our work on climate […] by providing greater clarity on the outcomes expected of firms in their management of climate risks.“  The PRA explains that the updated supervisory expectations will consolidate existing guidance (letters to CEOs[8] and CFOs[9], and thematic feedback reports[10]) and reflect improved understanding of climate risks.

Finally, this update follows International Financial Reporting Standards (IFRS) S2[11](released in October 2023) and the EU's CSRD[12], which came into force on the 5^th of January 2023. While IFRS S2 focuses on climate-related disclosures, the CSRD mandates broader sustainability disclosures, including environmental, social, and governance (ESG) factors for European companies. We are expecting the updated SS3/19 to incorporate broader climate-related risk considerations, ensuring UK firms remain competitive and compliant with global best practices.

Since the introduction of SS3/19, the PRA has observed significant progress among banks and insurers in addressing climate-related financial risks. Many firms have established governance structures and begun incorporating climate considerations into their risk management frameworks and disclosures. However, the PRA has also noted areas requiring further improvement, including consistency in scenario analysis, integration into strategy, and more actionable disclosures. These advancements underscore the evolving nature of the financial sector’s approach to climate-related risks.

The revised SS3/19 will likely address lessons learned over the past six years, introducing more specific guidance on scenario analysis, enhanced expectations for disclosures, and clearer requirements for embedding climate-related risks into firms’ governance and risk management frameworks. These updates aim to maintain the momentum toward aligning the financial system with broader sustainability goals.

Following the update to SS3/19, the Bank of England (BoE) and the PRA will continue to monitor and guide firms' progress through regular reviews and stress tests. In parallel with SS3/19, other climate-related discussions and initiatives are taking place in the UK, such as the UK's Transition Plan Taskforce[13] (TPT) framework, which sets standards for credible climate transition plans[14], with regulations expected in 2025. Together, these regulations will drive firms to adopt more comprehensive and transparent approaches to managing climate-related financial risks.

The PRA released its new CP10/25 “Enhancing banks’ and insurers’ approaches to managing climate-related risks”. This publication seeks to update and build upon the guidance outlined in the earlier SS3/19. The new paper reflects the PRA’s ongoing commitment to strengthening the resilience of UK firms (banks, (re)insurers, building societies and other PRA-regulated firms) against the growing financial, operational, and strategic risks posed by climate change. It forms part of the wider regulatory initiative aimed at embedding climate risk considerations more deeply into firms’ governance, risk management and capital adequacy frameworks, in alignment with evolving expectations and global best practices.

Three points to consider when thinking of CP10/25:

• The consultation paper is relevant to all UK firms which is consistent with SS3/19, to ensure continuity in the regulatory expectations.
• CP10/25 brings useful insights and clarity to the PRA’s more prescriptive expectations focusing on the importance of data, the reliance on climate risk quantification for risk management, the use of climate scenario analysis as a decision-making tool, and the needed incorporation into capital adequacy assessment and financial risks.
• The consultation period will be open until 30^th July 2025 with an expected final SS publication by the end of 2025. Firms will then have six months to submit their roadmaps including internal assessments, gap analyses and action plans to the PRA. As such, firms are strongly encouraged to start working on their roadmaps as soon as possible.

If you want to learn more about CP10/25, we broke down all the key details in our article: New expectations for financial services firms on climate risk: everything you need to know on CP10/25

Since the release of SS3/19 in April 2019, the BoE has conducted several climate risk stress tests, such as the Climate Biennial Exploratory Scenario (CBES) exercise, which has improved the understanding of climate risk and the climate science behind its stress tests. The results indicate that, while UK banks and (re)insurers can absorb climate-related financial shocks, there is a significant impact on profitability. The BofE also suggests in a recent publication[15] that the current range of climate scenarios may understate the true level of climate risk. Another BoE publication in April 2024[16] highlights the need for business-specific scenario analysis, indicating that firms must tailor their climate risk stress testing to their unique exposures and business models. This, along with the feedback from the PRA's supervision of climate-related financial risks and the CBES exercise, points to an update to SS3/19 that will likely incorporate more granular and tailored scenario analysis requirements. Furthermore, the PRA has noted that firms need to integrate forward-looking climate-related scenarios into their risk management processes, which may prompt a deeper consideration of climate-related shocks and stress testing in the updated SS3/19.

We are expecting further requirement on the banks and insurers strategy regarding the integration of climate-related risk but also opportunities to tackle climate change impacts. For example, the PRA's thematic feedback from the 2021/2022 auditor reporting round[17] highlighted the need for firms to not only address the risks of climate change but also identify opportunities for long-term strategic adaptation. This includes understanding the implications of climate risks on their business models and adapting their strategies accordingly across the short-, medium-, and long-term horizons. In line with this, the BoE's report on climate-related risks and regulatory capital frameworks[18] suggests that firms should demonstrate a clear alignment of their strategic planning with climate-related financial risks. These expectations will likely be incorporated into the SS3/19 update, compelling firms to adopt dynamic strategies and business model that align with both current and future climate challenges and be able to understand their related risk and opportunities.

The PRA's thematic feedback from its review of SS3/19 plans[19] has pointed to the need for a more structured and detailed approach to managing climate-related risks. For the risk management we can expect the SS3/19 update to set out specific expectations on the risk management process and principles to follow especially by detailing how firms can set-up a comprehensive management of credit, market, liquidity, operational and other risks understanding the impact of climate-related risk on these drivers. Additionally, in line with IFRS 9 Expected Credit Loss (ECL) and climate risk feedback[20], it is anticipated that the update will require firms to embed climate-related factors into their credit risk management, ensuring that climate scenarios are considered in ECL calculations.

IFRS S2, being the new international standard, requires detailed reporting on governance, strategy, risk management, and metrics and targets, aligning closely with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. We can expect the updated SS3/19 to have its disclosures requirements aligned with the IFRS S2. Similarly to the PRA, IFRS S2 states that firms should disclose climate-related transition risks, physical risks, and the amount of assets or business activities that are vulnerable to climate-related transition and physical risks. Furthermore, IFRS S2 expects firms to disclose how climate-related considerations are factored into executive renumeration. These enhancements will ensure that firms provide stakeholders with comprehensive information on their climate risk exposure, preparedness, and mitigation strategies.