Embedding climate risk: Key takeaways for boards from PRA SS5/25

The discussion reinforced the five starting points for action set out in Chapter Zero’s briefing on PRA climate risk expectations for boards. These takeaways highlight important considerations for board members as they oversee how climate-related risks are integrated into the business model and strategy, assessed proportionately, explored through scenario analysis and reviewed as conditions evolve. 

Key takeaways for boards

1. Integrate climate-related risks into the business model and strategy

SS5/25 consolidates and clarifies existing expectations, with a stronger focus on how climate risk insights are embedded in practice. Climate should not remain confined to a sustainability report or strategy presentation — it should visibly influence risk appetite, capital planning, governance discussions or business decisions.

The Supervisory Statement is intended to help firms strengthen their ability to identify, assess and manage climate-related risks. Its focus includes governance and accountability, risk management, scenario analysis, data and decision-useful disclosure.

Climate risk does not require a parallel governance system, it sits squarely within the board's core focus areas — e.g., understanding the risk profile, setting strategy and risk appetite, overseeing management, testing organisational capability and assuring resilience.

Climate risk does not require boards to stop being boards.

The destination is integration: climate risk should form part of the ordinary rhythm of governance, strategy, risk management and decision-making. However, while the responsibilities and decisions may be familiar, it is important that NEDs recognise the different characteristics of climate risk — including data uncertainties, long time horizons, non-linearities and interconnected risks.

Effective oversight involves understanding how material climate-related risks affect the business and providing independent oversight and challenge. In particular, boards are expected to:

• periodically review and agree the material risks in the risk register;
• approve an appropriate risk appetite for those risks;
• test how business strategy and risk management address them;
• receive timely information on exposures and mitigation; and
• consider the firm’s financial performance under a range of climate scenarios.

Directors are not expected to possess expertise in every aspect of climate risk. They do, however, need sufficient capacity and diversity of experience to challenge management effectively. 

2. Develop a proportionate response to climate-related risks

Under SS5/25, the appropriate response will differ between firms and should reflect the materiality of the exposure and the nature of the business. Proportionality should follow from the risks identified, rather than from the size of the firm alone. A smaller firm with concentrated exposure to flood-prone properties may be highly exposed to climate risks, despite its size.  

Boards should ask for a robust evidence trail supporting materiality conclusions —particularly any conclusion that climate risk is immaterial. Difficulty, uncertainty or imperfect data are not sufficient reasons to assume that a risk is insignificant. 

3. Strategically embed climate scenario analysis into business decisions

Scenario analysis should be a strategic and risk-management tool, not simply a compliance exercise or technical model. It can help the board understand how the business may perform under different plausible futures and inform strategy, risk management, capital setting and valuation where appropriate. 

Boards are encouraged to engage with the firm’s approach to scenario analysis, including to test whether: 

• the scenarios address risks material to the business model; 
• scenarios, time horizons and assumptions suit their intended use; 
• severe but plausible outcomes have been considered; 
• third-party scenarios have been understood and appropriately tailored; 
• limitations, proxies and levels of conservatism are transparent; and 
• results have influenced identifiable management or board decisions. 

The board’s role is to understand and challenge the assumptions beneath modelled results. 

Useful questions to ask include: 

• What do we know — and what do we not know? 
• Where are proxies or weak data being used? 
• How sensitive is the conclusion to key assumptions? 
• Would another reasonable assumption change the decision? 
• What has been discounted, and why? 
• What uncertainty remains? 

Uncertainty needs to become something we govern rather than something we wait to disappear.

4. Consider applicable regulations in the firm’s strategic response

Climate-related regulation and policy continue to evolve across jurisdictions and sectors. As part of their normal horizon-scanning, boards can consider how relevant regulatory and wider policy developments may affect the firm’s exposures, assumptions and strategic choices. This can help ensure that the firm’s response remains forward-looking and coherent, rather than treating SS5/25 in isolation. 

5. Establish regular review points and iterate the firm’s approach

Implementation maturity remains uneven 

Firms are increasingly moving beyond treating climate risk as a standalone topic and integrating it into governance, risk management and strategic decision-making. 

However, levels of maturity vary. Some firms have undertaken detailed, evidence-based reviews supported by clear implementation plans, independent challenge and strong board oversight. Others have taken a more high-level approach. Governance forums and reporting may be in place without consistent links between materiality assessments, risk registers, scenario choices and risk appetite decisions. 

Focus on implementation and evidence 

The emphasis is moving beyond self-assessment and plans towards evidence that gaps are being closed effectively. Boards can look for evidence of: 

• clear ownership and accountability; 
• credible and appropriately ambitious implementation plans; 
• meaningful milestones and progress reporting; 
• independent challenge; 
• consistent links between materiality, risk registers, scenarios and risk appetite; and 
• demonstrable improvement in risk management and decision-making.