Financial Regulators and Climate Risk

ClientEarth urges the UK government to extend mandatory Adaptation Reporting Power (ARP3) reporting to all major financial regulators, including the FCA, FRC, tPR, and PPF, alongside the PRA. The document highlights that while the PRA previously reported on the insurance sector in 2015, systemic climate risks—including physical, transition, and liability risks—remain poorly understood across other financial sectors such as banking and pensions. It emphasizes the urgency of the 2017-2018 reporting cycle to prevent a five-year delay in addressing these vulnerabilities.

• The Adaptation Reporting Power (ARP) is a five-yearly reporting process established by the Climate Change Act 2008, requiring public bodies to assess the impact of climate change on their functions and outline adaptation policies.
• The Committee on Climate Change (CCC) recommended in March 2017 that the third round of reporting (ARP3) be made mandatory and extended to cover all areas of the finance sector.
• Climate-related risks to the financial sector are categorized into three primary channels: physical risks (extreme weather and sea level rise), transition risks (shift to a low carbon economy and asset re-pricing), and liability risks (legal recovery of losses).
• The Prudential Regulation Authority (PRA) previously reported on the insurance sector in 2015, but this did not cover other market segments the PRA oversees or other areas of the financial sector.
• Banks are identified as particularly exposed to climate risk through real estate impacts and the potential 'stranding' of carbon-intensive assets in loan books.
• The pensions industry faces significant exposure to transition risks, with 90% of defined contribution savers in default funds vulnerable to ESG risks related to carbon regulation and energy price increases.
• The Financial Reporting Council (FRC) is criticized for providing minimal guidance and responding slowly to failures in company disclosures of material climate risks, despite TCFD recommendations.

APA

ClientEarth (2017). Financial Regulators and Climate Risk. https://www.clientearth.org/media/w0pn1kgl/financial-regulators-and-climate-risk-using-the-adaptation-reporting-power-ce-en.pdf

Chicago

ClientEarth. Financial Regulators and Climate Risk. 2017. https://www.clientearth.org/media/w0pn1kgl/financial-regulators-and-climate-risk-using-the-adaptation-reporting-power-ce-en.pdf.

Wikipedia

{{cite press release |author=ClientEarth |title=Financial Regulators and Climate Risk |date=April 2017 |url=https://www.clientearth.org/media/w0pn1kgl/financial-regulators-and-climate-risk-using-the-adaptation-reporting-power-ce-en.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{clientearth2017financial, author = {{ClientEarth}}, title = {{Financial Regulators and Climate Risk}}, publisher = {ClientEarth}, year = {2017}, month = apr, url = {https://www.clientearth.org/media/w0pn1kgl/financial-regulators-and-climate-risk-using-the-adaptation-reporting-power-ce-en.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }