CFRF Publishes 2025 Guidance Suite on Climate Adaptation, Physical Risk, and Nature-Related Risk

Key Takeaways

• The FCA- and PRA-sponsored Climate Financial Risk Forum released six new publications in October 2025 covering adaptation finance, physical risk vendor benchmarking, quantitative scenario analysis, and nature-related risk.
• While non-binding, these materials signal regulatory expectations for how firms should mature their climate risk management practices and will likely inform future supervisory dialogue.

Deep Dive

The CFRF, co-established by the FCA and PRA in 2019, has released its latest suite of industry guidance aimed at helping financial institutions strengthen climate-related risk management. Although the FCA and PRA explicitly state that these publications do not constitute regulatory guidance and may not reflect official regulator views, compliance teams should not dismiss them as immaterial. CFRF outputs have historically shaped supervisory expectations and industry best practice, and firms that fail to engage with these frameworks may find themselves lagging peers when regulators eventually formalize expectations around physical and nature-related risk.

Key themes in this release include a transition from adaptation strategy to operational implementation (the "From Risk to Resilience" report and updated ABC framework), a rigorous benchmarking of 13 physical risk vendors revealing significant dispersion in hazard and damage estimates, and a second-edition handbook on nature-related risk building on TNFD's LEAP framework. The GARP vendor benchmarking study is particularly notable for compliance and risk teams relying on third-party climate risk data, as it highlights material methodological inconsistencies that could affect credit, underwriting, and investment decisions if not properly understood and disclosed. Additionally, the updated Online Climate Scenario Narrative Tool now aligns with NGFS Phase V Long-Term Scenarios and the May 2025 Short-Term Scenarios, which firms should incorporate into their own scenario analysis refresh cycles.

No formal deadlines are attached to these publications, as they are voluntary industry guidance rather than binding rules. However, firms should treat this release as a prompt to benchmark current climate risk practices against the frameworks and case studies provided, particularly ahead of anticipated future FCA/PRA supervisory statements on climate and nature risk integration.

Recommended actions include: (1) reviewing third-party physical risk vendor methodologies against the GARP benchmarking checklist before renewal or procurement decisions; (2) assessing internal training programs against gaps identified in the "Skilling Up" report; (3) evaluating whether nature-related risk is adequately integrated into existing climate risk frameworks, using the LEAP approach; and (4) updating scenario analysis models to reflect the latest NGFS scenario vintages. Firms with weak physical or nature risk capabilities face reputational, prudential, and strategic risk exposure, particularly as climate-related financial disclosure and stress-testing expectations continue to evolve toward more granular, quantitative standards.

Source: Financial Conduct Authority