While the PRA’s latest consultation paper, CP10/25 doesn’t reinvent climate risk regulation, it does reflect a clear escalation in how supervisors expect firms to respond. The focus is no longer on whether climate risk is being considered but on how deeply it is embedded into risk, capital, and governance frameworks.
Supervisors are now looking beyond policy statements and disclosures to assess how climate risk informs tangible decision-making across all material risk categories. For firms with established ESG programmes, this means reassessing whether existing frameworks are genuinely influencing financial and strategic outcomes.
What supervisory enhancements are proposed in CP10/25?
CP10/25 (which proposes updates to SS3/19) aims to consolidate existing PRA guidance and bring it into closer alignment with international standards. While the proposals do not introduce new statutory rules, they substantially clarify supervisory expectations of good practice and raise standards in several areas. The core themes include:
- Enhanced governance and senior accountability: Increased expectations for board oversight, including clearer climate risk analysis for board reporting, dedicated training for directors, robust risk appetite setting linked to strategy, and explicit Senior Management Function (SMF) accountability.
- Integrated climate risk management: A structured approach to identifying, assessing, measuring (with clear metrics and limits), and reporting on climate risks is now expected. Climate factors should be embedded into existing credit, market, liquidity, and operational risk frameworks — not managed in isolation.
- Scenario analysis and data use: Climate scenario analysis (CSA) must be used rigorously to inform strategy, risk management, and capital planning (ICAAP/ILAAP). Firms are expected to understand model limitations and address data gaps using conservative proxies where necessary, supported by clear governance.
- Climate-impacted financial reporting: Lenders must explicitly incorporate material climate-related risks into financial reporting, expected credit loss (ECL) calculations, and internal capital and liquidity adequacy assessments.
These enhancements collectively raise the climate risk management baseline and signal a change in what firms will be expected to demonstrate in practice. With that in mind, firms should consider the following priorities ahead of the final Supervisory Statement.
What should firms do now?
Although CP10/25 remains open for consultation until 30 July 2025, the PRA’s direction is clear. Firms should begin taking action in the following areas:
#1. Conduct a comprehensive gap analysis
Review existing practices against the expectations outlined in the draft Supervisory Statement. Identify deficiencies and develop fully resourced remediation plans.
#2. Strengthen board-level climate oversight
Ensure climate-related risk analysis provided to the board is specific, targeted, and decision-useful. Deliver or enhance dedicated training to support strategic challenge and governance.
#3. Advance data strategies and CSA capabilities
Invest in sourcing and governing relevant climate data. Refine CSA methodologies to ensure outputs are embedded into ICAAP, ILAAP, and other decision-making processes. Tailor scenarios to the firm’s business model and run reverse stress tests where appropriate.
#4. Embed climate risk into core frameworks
Update policies and procedures for major risk categories to reflect climate risks. Define meaningful metrics and limits. For lenders, review and enhance how climate factors are incorporated into ECL methodologies and financial reporting governance.
#5. Engage with the PRA consultation
Respond constructively to the consultation. Feedback grounded in operational experience can help shape the final supervisory statement and promote more practical outcomes.
Firms that act early will be better placed to demonstrate credibility and control as supervisory scrutiny increases. Jaywing is already supporting firms in turning these expectations into practical, proportionate action. Here’s how…
Jaywing's assessment of the consultation
Translating complex regulatory guidance into effective operational practice invariably presents significant challenges, particularly concerning data, modelling, and governance. These are the areas we feel would benefit from further clarification to aid industry implementation:
1. Application of proportionality
Challenge: Materiality remains subjective, risking inconsistent application.Clarification sought: Clear indicators of what constitutes material exposure, and how proportionality will be assessed — especially for smaller firms.
2. Data availability and third-party data governance
Challenge: Access to granular, reliable data remains limited, and reliance on third parties brings added cost and risk.Clarification sought: Expectations for validating third-party data, definitions of conservative proxies, and balancing outsourced data with in-house capability.
3. Operationalising CSA
Challenge: Tailoring CSA to firm-specific risk profiles requires significant expertise. Assessing realism of management actions is difficult.Clarification sought: Guidance on CSA integration into ICAAP/ILAAP, handling model uncertainty, expectations for reverse stress testing, and realism assessment.
4. Defining meaningful risk appetite metrics
Challenge: Developing robust metrics that reflect underlying risk — not just exposure — is complex, especially over long time horizons.Clarification sought: Examples of acceptable metrics and how to set thresholds given model and data uncertainty.
5. Integration with ECL, ICAAP, and ILAAP
Challenge: Climate-related modelling involves assumptions and data limitations. Aligning ECL with capital frameworks is operationally complex.Clarification sought: Methodologies for scenario weighting, PMAs, translating CSA into capital impacts, and evidencing judgements.
6. Implementation timelines and resources
Challenge: Meeting expectations will require substantial investment. The proposed six-month preparation window may be too short for more complex firms.Clarification sought: Confirmation of whether the six-month period applies uniformly, and whether the PRA anticipates any phased or prioritised implementation.
Supporting practical implementation
The PRA’s proposals demand more than policy alignment — they require robust, evidenced integration of climate risk into business and risk processes. Jaywing supports firms in embedding climate risk across credit, capital, and liquidity frameworks — from scenario analysis and governance design to ECL and risk appetite alignment.
Get in touch to see how we can support your response to CP10/25 or prepare your frameworks for what comes next.