In 2019 the PRA released a supervisory statement for banks and insurers as to its expectations for firms’ management of financial risks arising from climate change. Following this supervisory statement, the PRA communicated that it expects firms to have fully embedded their approaches to managing climate-related financial risk by the end of 2021.
These new requirements, along with numerous other regulatory initiatives relating to climate change reporting, centre on the format of disclosures as recommended by the Taskforce on Climate-related Financial Disclosure, which is broken down in to four areas:
- Governance
- Strategy
- Risk Management
- Metrics & targets.
Climate change presents financial risks to all businesses and all entities need to take action. Whilst larger insurers have the ability to dedicate significant resources to formulating their strategy around climate change, smaller insurers are less able to stand up large programmes in the same manner.
PKF have performed a review of climate change reporting across the insurance sector to date and looked at what smaller insurers may be able to learn from larger insurers who already have their public disclosures up and running, or smaller insurers who have already made good progress. We presented our findings at the Association of Financial Mutuals Annual Conference in October 2021 and the slides from this presentation are available to download. We have also collated the reference materials and examples of good practice noted during our research.
Reference material and examples
PRA
- PRA’s Supervisory Statement re managing financial risks from climate change: SS319 (bankofengland.co.uk)
- PRA’s thematic feedback on application of SS3/19: Managing climate-related financial risk – thematic feedback from the PRA’s review of firms’ Supervisory Statement 3/19 (SS3/19) plans and clarification of expectations (bankofengland.co.uk).
FRC
- Climate thematics – Nov 2020: Summary-FINAL.pdf (frc.org.uk) and Reporting-FINAL.pdf (frc.org.uk)
- Thematic review of Streamlined Energy and Carbon Reporting – Sep 2021: FRC SECR Thematic Report 2021.
Other useful resources
- TCFD recommendations: Recommendations | Task Force on Climate-Related Financial Disclosures (fsb-tcfd.org)
- Climate Financial Risk Forum Guide 2020: Climate Financial Risk Forum Guide 2020 – Disclosures chapter (fca.org.uk).
Large insurer examples
- Aviva: Acting on climate change – Aviva plc
- Royal London: Our climate change commitments – Royal London
- Legal & General Investment Management: LGIM’s Climate Impact Pledge: the 2021 results
- Axa: db5d9f4b-4bb9-4029-ad51-b9e0e20301fb_2021_Climate_Report.pdf (axa-contento-118412.eu)
- NFU Mutual: 2020-reports-and-accounts.pdf (nfumutual.co.uk).
Small insurer examples
- One Family (pages 45-47): onefamily-annual-report-and-financial-statement-2020.pdf
- Shepherds Friendly (pages 14-15): Shepherds-Friendly-RA-April-2021.pdf (windows.net).
Who are PKF and what do we do?
PKF is the UK’s 11th largest accountancy brand and the 8th largest audit practice. With over 160 partners and more than 2,030 staff working from 32 locations, PKF supports clients across the UK.
PKF Littlejohn have a strong reputation in the financial services sector and understanding technically complex public and private businesses is a specialism of ours. We are the 6th largest auditor of listed businesses in the UK with over 120 clients listed on the LSE, AIM or other international exchanges.
Our insurance centre of excellence is focussed on our London offices from which, with over 100 years of experience in the insurance market, PKF has built a solid and comprehensive reputation as one of a small number of UK accounting firms with the specialist expertise to support the industry. We are not only specialists in providing audit and assurance services to the insurance market; our team also includes experts in corporate finance, regulatory compliance, and governance, risk and control.
Our actuarial and IT assurance specialists are all insurance experts embedded in the team. Our dedicated insurance tax experts act for some of the largest insurance groups as tax advisors, providing corporation tax advisory, compliance and provisioning functions.
Ours is one of the largest insurance audit teams outside of the Big Four. Our rigorous programme of technical development starts at the very beginning of our people’s career with us, and we are proud to be the only insurance audit practice to provide our annual graduate intake with a foundation in the insurance industry, achieved through study in their first year for the Chartered Insurance Industry’s exams, enabling them to add value to our clients from the start.
