UK Climate Financial Risk Forum Publishes 2020 Guide

The U.K. Climate Financial Risk Forum has published its first guide providing practical recommendations for the financial services sector on how to respond to climate-related financial risks. The CFRF was established by the U.K. Prudential Regulation Authority and Financial Conduct Authority and is made up of industry representatives from the banking, insurance and asset management sectors, as well as others such as the London Stock Exchange Group and the Green Finance Institute. The CFRF aims to build capacity and share best practice across the finance industry in order to improve the financial services sector's response to the financial risks arising from climate change.

The CFRF's guide consists of an overview summary document together with four chapters on the following key areas:
 

• Risk management: this chapter sets out guidance on how firms should address climate risks and covers risk governance (involving understanding, oversight and accountability for financial risks arising from climate change), risk management frameworks, risk appetite and risk assessments;
• Scenario analysis: this chapter sets out guidance on how firms can use scenario analysis to assess climate-related financial risks, including the types of questions that scenario analysis can answer, the development of suitable climate-related scenarios, the assessment of the financial impact of the scenarios that are developed and the key challenges to the use of scenario analysis;
• Disclosures: this chapter provides expectations for good practice in climate-related financial disclosures and focuses on key topics such as governance and strategy disclosures, the disclosures that should be made by asset managers, banks and insurers and the barriers that financial institutions face in making useful climate change-related financial disclosures; and
• Innovation: this chapter sets out recommendations for how financial institutions and regulators can begin to align private sector financial flows with climate goals, focusing on pools of capital and the channels for delivery of that capital to climate-friendly infrastructure, innovations in the use of data to assist the financial sector in addressing climate and environment risks and what financial institutions should do to mobilize capital for climate solutions.

The Guide is designed to complement existing frameworks and initiatives such as the UN-supported Principles for Responsible Investment, Banking and Insurance and the Taskforce on Climate-related Financial Disclosures. The CFRF will provide an update on its forward-looking work and future outputs later in 2020.

View the CFRF's 2020 Guide.

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