Posted by Steven Gray on 2 July 2020
Tagged to CFRF, Financial Conduct Authority, Financial Risk Management, PRA

On 29 June 2020, the Climate Financial Risk Forum (CFRF) published their guide to climate-related financial risk management.

Climate-related risks will impact the financial position of entities and will have a significant impact on the financial services sector. Climate change will prevent assets from delivering services, impact the value of assets, the cost and availability of insurance and the creditworthiness of borrowers.

In the last few years we have seen increased attention by key financial institutions and supervisors on developing a common understanding and approach to addressing climate-related financial risks and opportunities.  

In the UK the Climate Financial Risk Forum (CFRF) was launched last year and is co-chaired by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). The objective of the CFRF is to build capacity and share best practice across financial regulators and industry to advance the sector’s responses to the financial risks from climate change.

The CFRE agreed key priorities in enabling entities to develop an effective and robust approach to responding to climate-related financial risks and opportunities and established four working groups on the topics of: Risk Management; Scenario Analysis; Disclosures; and Innovation. Each working group was tasked with producing a chapter on their topic, which constitute the chapters of the guide.

  • Risk management – by embedding climate-related financial risk into governance and risk management an entity can make better informed decisions, build resilience and better respond to systemic shocks.
  • Scenario analysis – by considering and modelling a range of potential climate-related scenarios entities can better understand and manage future risks, whilst identifying the opportunities of transitioning to a decarbonised economy. 
  • Disclosures – by making effective climate-related financial disclosures entities will improve  transparency of material financial risks from climate change on their businesses, helping the market better assess the future value of assets.
  • Innovation – by developing new approaches, products, services and policies an entity can better respond to the impacts of climate change and contribute towards a decarbonised economy. 

The CFRF guide is complementary to existing frameworks and initiatives, such as the UN-supported Principles for Responsible Investment, Banking and Insurance and the Taskforce on Climate-related Financial Disclosures (TCFD).

The authors

Steven Gray
Steven Gray

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