- UK’s PRA proposes stricter climate risk oversight across governance, risk management, data, and scenario analysis
- ECB challenges EU simplification proposals,
warns against weakening ESG data quality and sustainability reporting standards
- ISSB seeks to reduce reporting complexity under
IFRS S2, including Scope 3 emissions exemptions and jurisdictional
flexibilities
- Japan’s FSA finds varying rigor in climate
scenario analysis and urges stronger standardization
- Regulators worldwide are aligning climate
disclosure with financial stability objectives
Global regulators are intensifying pressure on financial institutions to improve climate-related risk management, with a wave of proposals, opinions, and consultations now in motion across the UK, EU, Japan, and international standard setters.
In the UK, the Prudential Regulation Authority (PRA) has released a new Consultation Paper proposing an overhaul of its expectations for how banks and insurers manage financial risks from climate change.
Replacing the existing guidance, the new supervisory statement would require firms to strengthen governance, develop more granular risk appetite metrics, embed climate scenario analysis into their capital adequacy planning, and address persistent data challenges.
The PRA emphasised that boards must actively oversee climate risk, ensure training, and integrate voluntary climate goals into business strategy.
Though framed as supervisory expectations rather than enforceable rules, the detail and tone suggest stronger scrutiny ahead.
At the EU level, the European Central Bank issued a non-binding but critical opinion on the European Commission’s planned simplification of sustainability reporting obligations.
While supporting streamlined rules in principle, the ECB warned that weakening ESG data quality could harm financial stability and risk assessment.
It urged the retention of mandatory assurance standards and sector-specific reporting requirements under the Corporate Sustainability Reporting Directive (CSRD), arguing that comparability and data credibility must not be sacrificed.
The bank also pushed for timely implementation and continued coverage of medium-to-large companies, including subsidiaries of international groups.
Meanwhile, the International Sustainability Standards Board (ISSB) published a draft amendment to its IFRS S2 climate disclosure standard.
The proposed revisions aim to ease reporting burdens by introducing optional exemptions for Scope 3 financed emissions tied to derivatives, facilitated transactions, and insurance.
ISSB also seeks to clarify jurisdictional flexibility around emissions measurement protocols and industry classification codes. The consultation is open until late June, with final changes expected later in the year.
In Japan, the Financial Services Agency (FSA) released a comprehensive survey of how financial institutions are integrating climate scenario analysis and transition plans in line with the Task Force on Climate-related Financial Disclosures (TCFD).
Conducted with EY ShinNihon LLC, the review assessed major banks and insurers and found significant differences in the scope and rigor of their approaches.
While some have made meaningful progress, others lag in developing detailed, science-based transition strategies. The FSA now plans to issue further guidance, promote standardization, and intensify oversight to support Japan’s move toward a low-carbon economy.
Taken together, these developments reflect a coordinated international push to ensure that financial institutions not only disclose their climate risks but embed them into strategic decision-making.
Regulators are demanding higher-quality data, more consistent scenario planning, and stronger board-level accountability.
As climate risk becomes a central financial stability issue, the message is clear: climate compliance is no longer optional, and scrutiny is only increasing.