PRA Supervisory Statement 5/25 (SS5/25): Key Expectations and Next Steps for Banks and Insurers on Managing Climate-related Risks

The PRA emphasises that climate-related risks arise through transmission channels - primarily physical and transition risks, and in some cases litigation risk - and typically crystallise through existing risk types (e.g. credit, market, liquidity and operational risk; and for insurers, underwriting and reserving). Firms should therefore embed climate-related risk considerations into existing governance, risk management and control frameworks rather than treat them as a standalone risk category.

SS5/25 highlights three distinctive characteristics of climate-related risks that create specific management challenges: they are systemic - correlated and potentially non-linear - uncertain in scale and timing but to some extent foreseeable, and path dependent, with the size and distribution of future risks influenced by actions taken today. 

Timing 

The PRA expects firms to complete an internal review, i.e., gap assessment, of alignment with SS5/25 within six months of commencement by 3 June 2026, and to develop a credible and appropriately ambitious plan to address gaps. The PRA does not expect all gaps to be fully remediated within that six-month period; rather, supervisors will not request evidence of the internal review and plans until at least after the six months have elapsed. 

As part of this internal review, firms should identify the expectations that require further work for them to meet and develop a plan for how they will address any gaps. 

To allow firms time to transition from SS3/19, supervisors will not ask for evidence of firms’ internal reviews, including internal assessments, gap analyses, action plans and other steps taken to meet the updated expectations, until at least after the six-month internal review period has elapsed. Where evidence is requested, firms should be able to demonstrate that their timetable for addressing gaps is credible and ambitious. 

SS5/25 also states that firms are expected to keep their assessment of climate-related risks under regular review and, where appropriate, update their analysis and planned actions as risks, data and methodologies evolve.
 

Proportionality and materiality

SS5/25 sets out a two-step approach to proportionality. First, all firms should assess the potential impact of climate-related risks on their business model. Second, where a firm is materially exposed to climate-related risks, it should make greater investment in monitoring and managing those risks. 

Firms should be able to evidence or explain the judgements underpinning their assessment of materiality and how those judgements have informed the design and sophistication of their governance, risk management and scenario analysis practices. 

The expectations do not apply to branches of overseas entities operating in the UK. 

Banking and insurance-specific considerations 

For banks, SS5/25 provides additional context on how climate-related risks can transmit through business models and established risk types and how this should be reflected in materiality assessment, portfolio monitoring and capital adequacy processes (including ICAAP) where relevant. 

For insurers, SS5/25 provides additional context on incorporating climate-related risks into insurance risk management and, where relevant, into stress and scenario testing, including within the Own Risk and Solvency Assessment (ORSA), unless the impact of climate-related risks is assessed as immaterial.
 

Key areas of focus going forward

In light of the above, the expectations set out in SS5/25 represent a material enhancement across all five core supervisory expectation areas when compared to earlier PRA guidance, the statement is not intended to introduce wholly new concepts. Rather, it significantly raises the bar on the depth, rigour, and evidencing of firms’ existing approaches to managing climate-related risks. 

Firms are expected to move beyond high-level qualitative assessments towards more structured, decision-useful scenario analysis that informs risk identification, strategy, and capital planning, notwithstanding inherent uncertainty and data limitations. At the same time, firms must strengthen their data frameworks, including governance over assumptions, proxies, and expert judgement, to support more robust analysis and repeatability over time.  

Finally, the PRA places increased emphasis on the need for climate-related disclosures to faithfully and transparently reflect firms’ current state of maturity across all five supervisory pillars, with clear alignment between public statements and internal governance, risk management, and risk appetite. Together, these expectations underscore the PRA’s focus on credible, well-evidenced and proportionate implementation, and signal a clear supervisory shift from foundational capability-building towards demonstrable, embedded practice.

How MHA can help 

Advisory and implementation support 

MHA’s financial services and ESG specialists support PRA-regulated firms in interpreting the requirements of SS5/25 and translating supervisory expectations into practical, proportionate implementation. This includes designing and reviewing internal reviews and gap assessments, supporting the development of remediation plans, and advising on enhancements to governance arrangements, risk management frameworks, climate scenario analysis, data processes, and internal controls. Our advisory support is tailored to firms’ business models, risk profiles, and materiality assessments, recognising the evolving nature of climate-related risks and methodologies. 

ESG audit and assurance considerations 

From an audit and assurance perspective, SS5/25 is expected to increasingly inform the scope and focus of ESG assurance and, where relevant, broader audit procedures over climate-related risks. MHA’s ESG Audit & Assurance professionals can provide independent assurance over selected aspects of firms’ governance, risk management, climate scenario analysis, data, and disclosure processes, where these fall within the scope of assurance engagements. Over time, certain elements of SS5/25, particularly those relating to governance, data, and the consistency between internal practices and external disclosures, are likely to form part of standard audit procedures, reflecting the PRA’s expectations for credible, well-evidenced and decision-useful climate risk management.