CFRF publishes climate-related industry guide putting ESG firmly on regulatory agenda

The Climate Financial Risk Forum (CFRF) has published the Climate Financial Risk Forum Guide 2020 – written by members of the financial services industry – to help firms address climate-related financial risks. The guide, which is the first of its kind, aims to educate firms about the risks presented by climate change and to set out ways of integrating these risks into decision making processes.

The guide focusses on four key areas: risk management, scenario analysis, disclosures and innovation. It acknowledges that, if poorly managed, climate-change risks “could be the source of consumer harm and potentially a future financial crisis stemming from financial losses and sudden adjustments in asset values.”

Commenting on the release, Financial Conduct Authority (FCA) co-chair of CFRF, Sheldon Mills, said “Climate change represents an unprecedented challenge to the planet, and the financial services industry has a significant role to play if we are to meet the UK’s target of net zero by 2050. The CFRF is a positive example of collaboration between regulators and industry to find common ways to overcome barriers to meeting this challenge.”

About the CFRF

The CFRF was established in March 2019 by the Prudential Regulation Authority (PRA) and the FCA with the aim of sharing best practice across financial regulators and the industry as a whole. Its members comprise an array of industry participants – from banks to insurers – including HSBC, JP Morgan, Schroders and Lloyd’s of London.

CUBE comment

The CFRF’s new guide is the latest in a string of publications from global financial regulators, proving that climate change and ESG factors are being sighted as a key priority in 2020. The guide has been released less than a week after the Monetary Authority of Singapore (MAS) launched a trio of consultation papers exploring proposed guidelines on Environmental Risk Management for banks, insurers and asset managers. The consultations, which close on 7 August 2020, sets out MAS’ proposed guidelines that look to enhance financial institutions’ resilience to and management of environmental risk.

Environmental risk and climate-related factors are areas that have been left relatively untouched until recent years. As such, the new focus will likely see an onslaught of new rules, regulation and guidance that firms will need to track, analyse and implement. Given the current pace of regulatory change, ESG (while imperative) will add to firms’ regulatory burdens. Firms that continue to rely on legacy or manual programs for horizon scanning and regulatory change management will likely find themselves struggling to manage towards the tail-end of 2020. Automation will be essential.