Climate Risk Moves From Side Of Desk To Front And Centre Under The UK’s PRA

In December 2025, the UK’s Prudential Regulation Authority (PRA) levelled up its expectations on climate risk analysis for financial institutions under its remit. Building on Supervisory Statement (SS) 3/19 – which focuses on climate risk awareness – the PRA has introduced SS5/25, establishing the expectation for firms to integrate climate risk into core financial workflows using two key tools: climate scenario analysis (CSA) and climate data. Tick‑box compliance is out. Regulators are looking for climate risk analysis that is practical, explainable and proportionate to a firm’s size and material exposures.

So, what does this mean for PRA‑regulated UK institutions? To put it simply: perfection isn’t the requirement, explainability is. By June 2026, firms need to demonstrate meaningful, defensible progress across two major climate financial data and analytics (CFD&A) areas:

• Selecting transparent, credible climate scenario tools (e.g., IPCC, NGFS) to assess both physical and transition risks in ways that inform supervisory decisions, from stress‑testing liquidity and balance sheets to updating underwriting practices and collateral valuations. Scenario time horizons should align with the use case – medium‑ to long‑term for strategy, shorter‑term for risk management. At its core, firms must understand the resilience of their business models and identify where, and how, they could fail under different climate pathways.

• Combining internal capabilities with high‑quality third‑party climate data and analytics to strengthen loan book and portfolio‑level risk management. This means developing in‑house climate risk expertise while partnering thoughtfully with external providers, keeping data governance and methodological transparency front and centre. Where estimates or proxies are used, firms must be prepared to justify and defend them. Engagement across the data chain – with clients, counterparties and analytics vendors – is expected to help close material data gaps. Asking third‑party providers for methodology detail, data sources and calculation traceability should now be standard practice.

How Verdantix can help:

1. Verdantix can help financial institutions navigate the landscape of CFD&A providers. Our benchmark research, including the Green Quadrant and Smart Innovators studies, examines vendors’ capabilities, methodological transparency and integration maturity across physical and transition risk scenario analysis, data models, and portfolio‑level analytics. Eligible practitioners can gain complimentary access to this research through our Vantage platform.
2. We also work with institutions to map vendor capabilities to their specific use cases and regulatory expectations, such as CSA integration, data lineage requirements, and governance standards under SS5/25 and other emerging global frameworks through custom advisory projects.

The window to adapt to these updated requirements is narrowing. SS5/25 marks a new phase for climate risk analysis in financial institutions, where decision‑useful meets defensible. As one of the few research firms with dedicated research in this space, Verdantix can help risk teams build a clearer view of which tools are ready for supervisory‑grade analysis and where the market is still developing.