The Prudential Regulation Authority has issued its latest supervisory statement (SS5/25), signalling that climate risk must now be treated as a core prudential concern rather than an emerging one. Banks and insurers have six months to complete an internal review of their climate risk exposure and have an action plan that can be provided to the PRA upon request, with direct implications for governance, stress testing and capital planning.
In 2019, the Prudential Regulation Authority issued a wake-up call to banks and insurers to start embedding climate risks into their governance, strategy, and risk management. Back then, the focus was on raising awareness. Now, with SS5/25, the PRA is explicitly prudential in tone: climate risks are treated on par with other financial risks. It’s a shift that brings direct balance-sheet and solvency implications, not just disclosure obligations.
New expectations
PRA SS5/25 consolidates and tightens expectations for banks and insurers on governance, data, scenario analysis, and integration of climate into core risk frameworks. The focus has changed from awareness to integration. From narrative to evidence. And from trial to implementation.
Integration into core risk frameworks
Climate risk can no longer sit in a standalone framework; it must be embedded directly into credit underwriting, portfolio management, liquidity planning, market risk limits, and operational resilience, influencing pricing, limits, collateral, provisioning, and capital.
Data expectations
Meeting these expectations requires more robust data. The PRA is pushing firms toward granular, forward-looking information, including explicit physical risk data and sector-level decarbonisation metrics that can meaningfully inform underwriting and credit assessments – for example, property-level flood and heat-stress data, or borrower-level transition plans aligned to sector pathways.
Enhanced scenario analysis
The emphasis is now on demonstrating how climate scenarios translate into shifts in credit losses, liquidity pressures, valuation changes, and ultimately capital requirements, including impacts on ICAAPs and ORSAs. In practice, this means linking scenario outputs to existing risk models, for example, by adjusting the Probability of Default (PD) assumptions, revising sector risk weights, or applying stress testing to funding costs and market valuation, so that climate impacts flow through into financial metrics.
Six-month assessment
The PRA has enforced the six-month requirement. Firms are expected to conduct a clear internal assessment of where they stand against SS5/25 and be able to present a credible, proportionate remediation plan by 3 June 2026.
No implementation period
The six-month window is not an implementation period. The PRA expects companies to set priorities for the most material climate risks, assign ownership and define timelines for when key elements of the plan will be delivered. After this period, firms are expected to deliver on the plan and manage climate risks with the same rigour as other financial risks.
What to do now
Over the next months, the priority is to understand how your current approach aligns with SS5/25. This means carrying out a proportionate yet honest internal assessment of where climate risk is (and isn’t yet) integrated across governance, risk management, data, and scenario analysis. From that, you should shape a clear remediation plan that assigns ownership, establishes sequencing and timelines, and focuses on the areas where climate-related risks are most material to your business.
The PRA has explicitly stated that this period is for review and planning, not full implementation, meaning the objective is to define a credible pathway rather than to perfect every element immediately. A well-structured plan will not only meet supervisory expectations but also position you to embed climate risk alongside other core financial risks in a meaningful way.
If your organisation has a robust understanding of its climate risks, you will be far better positioned not only to comply with today’s requirements but also to adapt to future changes.
Climate risk assessments transcend compliance
Ultimately, the PRA has strengthened expectations reinforce the broader truth that a strong climate risk assessment is far more than ticking a compliance box.
When done properly, climate risks assessments become a core risk-management tool that naturally aligns with regulatory requirements. Their insights feed directly into credit decisions, portfolio steering and capital planning, helping institutions preserve shareholder value and maintain market confidence in a rapidly transitioning economy. The smartest organisations are those that focus on three core principles:
- Stay informed, but don’t get obsessed with the regulations: Understanding SS5/25, completing the gap analysis, mapping material exposures and setting a proportionate roadmap are all important, but they are foundations, not the destination.
- Ensure climate analysis actually drives decision-making: The assessment should influence product pricing, strategy, and capital considerations, not sit in isolation from the core business.
- A strong climate risk assessment is an investment in resilience: It sharpens governance, strengthens financial planning and leaves the organisation better prepared for uncertainty, directly supporting robust liquidity management, solvency oversight, and capital adequacy decisions.
A strong climate risk assessment remains your best safeguard and is central to meeting the PRA’s six-month deadline. Complying with SS5/25 is only the starting point. The firms that will thrive are those that use this moment to build capabilities that enhance financial performance, inform strategic choices and embed climate considerations into everyday decision-making.
Support for your climate risk gap analysis
With the 3 June 2026 deadline for internal gap analysis, now is the time to build a structured approach. We support financial institutions in completing climate risk assessments that meet PRA expectations, translating them into strategies that mitigate risks and unlock opportunities in a low carbon world.
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