New Expectations on the Financial Sector to Report Climate Change Risk
The increasing frequency and severity of climate events poses growing threats to financial institutions. The Prudential Regulation Authority’s (PRA) Supervisory Statement 5/25 (SS5/25), published in December 2025, sets out the final and enhanced expectations for how UK banks and insurers must manage climate-related financial risks.
What is the PRA Supervisory Statement (SS5/25)?
The financial sector is already experiencing the effects of climate change through direct losses and shifts in business models. As governments and markets respond to climate change, firms must navigate complex changes in asset valuations, customer behaviours, and regulatory landscapes.
SS5/25 replaces the previous SS3/19 and signifies a shift from viewing climate risk as an emerging issue to treating it as a core, material financial risk that must be fully integrated into existing risk management frameworks. Important to this are the physical risks such as flooding, extreme heat, and rising sea levels, but also potentially transitional risks, as the economy adapts to decarbonisation.
What does this mean for Banks and Insurers?
SS5/25 mandates a strategic and embedded approach to climate risk management, moving from narrative discussions to tangible, evidence-based actions that have direct balance-sheet and solvency implications:
- Governance and Strategy: Boards and senior management must be actively engaged in overseeing climate risks and embedding these considerations into strategic decision-making and risk appetite statements.
- Risk Management Integration: Climate risks (physical and transition) must be integrated across all existing risk types (credit, market, operational, etc.) and not managed in isolation..
- Climate Scenario Analysis (CSA): Firms are expected to use CSA as a strategic tool to understand business model resilience under different climate pathways. The focus is on demonstrating how scenario outputs inform business decisions, including impacts on capital (ICAAP) and solvency (ORSA).
- Data and Disclosures: There is a strong emphasis on improving the quality, granularity, and usage of forward-looking climate data. While the PRA is not introducing new disclosure requirements, it expects firms to align with evolving international standards and provide transparent, decision-useful information.
- Proportionate Application: The expectations are principles-based and must be applied proportionately to a firm’s size and the materiality of its climate risk exposures. Smaller firms with exposures are still expected to take action, but may use less sophisticated tools than larger, more complex firms.
- Implementation Timeline: Firms have a six-month period from the publication date (until approximately June 2026) to conduct an internal review (gap analysis) of their current status against SS5/25 expectations and develop an action plan for addressing any gaps.
What is GeoSmart doing to help?
The enhanced expectations of SS5/25 will create an increased demand for GeoSmart and suppliers of environmental reports, climate data, and related services. Our environmental searches are designed to meet the new requirements:
- Quality Data: We provide reliable, granular, and forward-looking environmental and climate data (e.g., property-level flood risk)
- Granular and Specific: GeoSmart uses specific data that can feed into complex internal models and risk frameworks to quantify potential financial impacts (e.g., credit losses, valuation changes).
- Uncertainty and Limitations: GeoSmart provides transparency in our methodologies and assumptions.
- Scenario Analysis Support: Our tools will support both quantitative and qualitative scenario planning over various time horizons (including RCP’s 2.6, 4.5 and 8.5, and future epochs 2030’s, 2050’s and 2080’s.
- Collaboration and Innovation: We are working with other data and report suppliers to meet evolving best practices and the need for a joined-up view of all types of physical risk.
- Third-Party Assurance: For high-quality disclosures firms need to seek assurance over their climate data and reports, where GeoSmart consultants offer advisory services.
How to ensure you comply with SS5/25?
Contact GeoSmart to discuss your needs and for demonstration of or products and services which are designed to support full compliance with UK regulations. For more information on our relevant products and services, please follow this link:
For further information on the SS5/25 requirement , please follow this link:
