The PRA has published a new supervisory statement SS4/25 setting out updated supervisory expectations for banks' and insurers' management of climate related risks, replacing supervisory statement SS3/19 in its entirety with effect from 3rd December 2025. It applies to all UK banks, building societies, PRA-designated investment firms, insurance and reinsurance firms.[1]
The full SS is available to download here:
https://www.bankofengland.co.uk/prudential-regulation/publication/2025/december/enhancing-banks-and-insurers-approaches-to-managing-climate-related-risks-ss
The 59 responses to CP10/25 reflected a range of views, but the overall sentiment was considered supportive, with none challenging the case for regulatory action. No material changes were made between CP10/25 and SS4/25.
A summary of the consultation responses and the PRA resulting changes to draft policy can be found here: https://www.bankofengland.co.uk/prudential-regulation/publication/2025/december/enhancing-banks-and-insurers-approaches-to-managing-climate-related-risks-policy-statement
SS4/25 represents a clear uplift in expectations compared to SS3/19. Key areas of enhanced expectations in addition to those explicitly highlighted in our following key takeaways include:
SS4/25 is live and replaces SS3/19 as at its release date, 3 December 2025. The PRA expects all firms to complete, within six months, an internal review of their current status in meeting the updated expectations and have developed a plan for addressing gaps. After 3 June 2026, supervisors may ask for evidence of these internal reviews and action plans but will not expect action plans to have been completed**.**
SS4/25 encourages firms to take a proportionate approach. However, proportionality is based on exposure to climate-related risk not firm size. The PRA has outlined a two-step process to determine the materiality of climate-related risk exposure (step 1) then act proportionately (step 2).
In step one, all firms must “identify the material climate-related risks they are exposed to and understand how these risks could impact the resilience of their business model over relevant time horizons and under different climate scenarios”. If these risks are material, step 2 would require more in-depth CSA to inform business strategy, risk management, capital setting and valuation.
The nature of CSA exercises (including reverse stress tests) may vary from primarily narrative-based scenarios, quantified by expert judgement, to more mathematically sophisticated approaches, as appropriate. Importantly, the PRA expects firms to understand the design, application and limitations of the climate scenarios they use.