Industry response

PRA CP23/18 Enhancing banks' and insurers' approaches to managing the financial risks from climate change

CP23/18 sets out the PRA's thinking on the need for firms to plan for and mitigate the potentially severe effects of climate change. It breaks these down into 'physical risks' such as property damage caused by flooding, and 'transition risks' meaning the risk that a firm loses money due to the move towards a low-carbon economy.

The BSA welcomes the PRA's focus on climate change and agree with their categorisation of the risks. For building societies the biggest risk is concentrated in the mortgage book, around potentially severe weather events such as flooding. But we argue that currently there is no common approach to modeling climate change. Data on losses emanating from climate change in the mortgage book is required before firms can build models and carry out stress-testing and scenario analysis. 

You can read the BSA's response here.