The Prudential Regulation Authority published Supervisory Statement SS4/25 on 6 December 2025, replacing the climate risk framework it had issued in 2019 with updated expectations that take immediate effect for banks and insurers operating under its supervision. The new statement refines rather than fundamentally overhauls the PRA's approach to climate-related financial risk, but introduces a more explicitly proportionate framework in which the depth and breadth of work expected from a firm is calibrated to the materiality of its climate-related exposures rather than simply to its size or systemic importance.
The 2019 framework, contained in the original SS3/19, was among the first formal supervisory statements on climate risk issued by a major prudential regulator anywhere in the world and set a benchmark that influenced regulatory approaches in other jurisdictions. SS4/25 builds on the foundation laid over the intervening six years, drawing on supervisory reviews, firm self-assessments, and the evolution of industry practice to sharpen the PRA's expectations.
PROPORTIONALITY AND MATERIALITY AT THE CORE
The centrepiece of SS4/25 is the proportionality principle, which requires firms to scale their climate risk management work to the materiality of their actual exposures rather than applying a uniform standard across all regulated entities. Under this approach, a bank with significant exposures to physical climate risks — through, for example, a large mortgage book in coastal flood-risk areas or substantial lending to carbon-intensive sectors — will be expected to invest more heavily in climate risk identification, measurement, and management than a smaller firm with a less exposed portfolio.
This shift is significant because the earlier framework, while acknowledging differences between firms, set out expectations that could be read as applying broadly regardless of exposure profile. By making materiality the primary driver of supervisory expectations, SS4/25 reduces the compliance burden on firms with limited climate exposure while maintaining — and potentially intensifying — pressure on those with the most concentrated risks.
The PRA has also confirmed in the statement that no standalone capital charge for climate risk will be introduced at this stage. Instead, banks are expected to embed climate risks into their Internal Capital Adequacy Assessment Process and their Internal Liquidity Adequacy Assessment Process where those risks are assessed to be material. This approach maintains the integration of climate risk within existing risk management and capital frameworks rather than treating it as a separate regulatory category requiring its own capital buffer.
IMPLEMENTATION AND SUPERVISORY FOLLOW-THROUGH
SS4/25 takes effect immediately, meaning banks and insurers were expected to begin aligning their practices with the updated expectations from the date of publication. The PRA has indicated that it will assess compliance through its normal supervisory channels, including firm-specific reviews and the internal assessments that form part of the annual supervisory cycle.
For banks, the requirement to embed climate risks into ICAAP processes where material creates a concrete action point. Firms that have not yet integrated climate scenario analysis into their capital planning will need to assess whether their exposure profiles require them to do so under the SS4/25 framework, and to document that assessment in a way that is available to their PRA supervisory contact.
The publication of SS4/25 arrives at a moment when the broader international landscape around climate risk regulation has become more uncertain, with some jurisdictions scaling back mandatory disclosure and stress-testing requirements. The PRA's decision to update and maintain its framework signals that the Bank of England's supervisory approach to climate-related financial risk remains firmly in place, providing a degree of regulatory continuity for UK-regulated institutions seeking to plan their risk management investments over the medium term.