PRA SS5/25: What Banks Must Do on Climate Risk by June 2026

The PRA has published a new supervisory statement SS5/25 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 3 December 2025. It applies to all UK banks, building societies, PRA-designated investment firms, insurance and reinsurance firms.

The full SS is available to download from the Bank of England website.

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 SS5/25.

Our key takeaways

1. The bar has been raised. SS5/25 represents a clear uplift in expectations compared to SS3/19. Key areas of enhanced expectations include: moving beyond awareness of climate risk to active oversight and senior accountability; proactive steps to identify and close data gaps; and deeper integration of climate into existing risk frameworks, controls, and reporting processes.

2. Immediate action is required from all firms. SS5/25 is live and replaces SS3/19 as at its release date. The PRA expects all firms to complete, within six months, an internal review of their current status in meeting the updated expectations and develop a plan for addressing gaps. After 3 June 2026, supervisors may ask for evidence of these internal reviews and action plans.

3. Firms of all sizes need to develop climate scenario analysis capabilities. SS5/25 encourages firms to take a proportionate approach — but proportionality is based on exposure to climate-related risk, not firm size. 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, more in-depth climate scenario analysis is required to inform business strategy, risk management, capital setting and valuation.

4. Targets need plans. The SS specifies that where a firm adopts goals or targets, it must be able to demonstrate how its plan to meet those goals — including the assumptions underpinning these plans — is integrated into the firm's overall strategy. Banks with net zero targets will therefore need to ensure continued demonstrable progress on interim targets and transition plans that detail how net zero goals will be achieved.

5. Numbers beat narrative. The banking-specific expectations of the SS call for quantification of the impact of climate-related risks, both to ascertain materiality and, for firms with material exposures, where actions are applied. This means climate-related impacts — if material — need to be considered across a firm's balance sheet, P&L, ECL models, ICAAP and ILAAP.

6. It's not just about lending. SS5/25 makes clear that firms need to also consider their operational resilience, including whether any outsourcing and third-party arrangements are exposed to climate risk. Firms need to consider this under "severe but plausible" scenarios, with the board setting appetite and tolerance levels and exposures monitored using a range of quantitative and qualitative tools and metrics.

Conclusions

The final supervisory statement significantly raises the bar compared to the SS3/19 it replaces. It takes effect immediately and all firms have six months — until 3 June 2026 — to conduct internal gap analysis and develop action plans. Firms of all sizes will need to enhance their climate scenario analysis capabilities, transition planning, and ability to quantify the impacts of any material climate risks — not just in their lending but in their operations and supply chains too.