Executive Summary
The UK’s financial regulators are making a significant effort to include climate adaptation in key economic decisions. The Climate Financial Risk Forum (CFRF), a joint effort by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), has released new guidance to help banks, insurers, and asset managers put climate resilience into practice. Its revised Aim–Build–Contingency (ABC) framework and recent reports on climate data, skills, and nature-related risks represent an essential step toward aligning financial systems with long-term adaptation goals. The message is clear: the financial sector must move from simply assessing climate risk to fully integrating climate resilience across all portfolios, institutions, and markets.
Embedding Climate Adaptation into Financial Decision-Making
The CFRF’s main publication, From Risk to Resilience, explains how financial institutions can incorporate climate adaptation into lending, investment, and insurance activities. The report encourages institutions to see adaptation not just as a defense against loss but as an opportunity for growth. This involves financing climate-resilient infrastructure, creating resilience-linked loan products, and embedding measurable climate performance metrics into financial instruments. The updated ABC framework builds on the CFRF’s 2024 guidance, highlighting adaptation planning within climate transition strategies. Contributors include major banks such as Standard Chartered and NatWest, asset managers such as Schroders and Columbia Threadneedle, and insurers such as Zurich and Aviva.
The Aim–Build–Contingency (ABC) Framework
At the core of the new guidance is the ABC framework, which utilizes three forward-looking climate scenarios to inform investment and risk management decisions. The “Aim” scenario aligns with a 1.5°C pathway emphasizing rapid decarbonization. The “Build” scenario assumes a 2°C trajectory with moderate transition measures, while the “Contingency” scenario prepares for a 2.5°C world with increased physical risks. Together, these perspectives enable financial institutions to test asset resilience, assess portfolio sensitivity, and strengthen long-term investment strategies under different climate conditions.
Benchmarking Climate Data and Risk Vendors
The CFRF’s second report evaluates how well physical climate risk data providers perform and stay consistent. It identifies significant differences in modeling assumptions, data methods, and approaches to systemic climate impacts—such as disruptions to food and water supplies and broader social and economic effects. The report urges financial institutions to improve vendor due diligence, enhance data comparability, and develop internal analytical skills to handle uncertainty. The CFRF emphasizes that greater transparency and standardization are essential to ensure that climate data effectively supports trustworthy, decision-useful risk management.
Closing the Climate Risk Skills Gap
Another key CFRF report underscores the growing need for climate-literate financial professionals. It highlights gaps in technical skills—especially in scenario modeling, data science, and quantitative analysis—and urges targeted investments in workforce training. To demonstrate the practical value of these skills, the forum released case studies showing how climate adaptation and chronic physical risks affect sovereign credit ratings, corporate valuations, and insurance exposures. These examples show that incorporating resilience analytics into financial planning not only improves compliance but also enhances portfolio performance.
Integrating Biodiversity and Nature-Related Risk
A companion handbook from the CFRF examines how biodiversity loss and ecosystem degradation increase climate risks. The publication highlights that climate and nature risks are closely linked: biodiversity loss can speed up climate impacts, while climate change itself disrupts ecosystems that support economic and financial systems. The CFRF recommends that financial institutions incorporate nature-related dependencies and effects into their overall risk management and disclosure frameworks, aligning with global standards such as the Taskforce on Nature-related Financial Disclosures (TNFD).
Regulatory Signals and Sector Implications
While the CFRF’s publications are advisory rather than mandatory, they provide clear direction for UK financial oversight. The FCA and PRA both emphasize that the economic system must adapt to physical and transition risks as climate impacts grow more severe. The guidance signifies a move from awareness to action, encouraging institutions to embed climate resilience across their portfolios, lending policies, and governance frameworks. This shift positions the UK as a leader in integrating adaptation finance into mainstream financial regulation.
From Risk Awareness to Resilience Leadership
The CFRF’s 2025–2026 agenda marks a pivotal moment in the development of sustainable finance. By emphasizing adaptation, vendor standards, skills development, and biodiversity, the forum is helping the financial sector shift from awareness of climate risk to leadership in climate resilience. Although the guidance is non-binding, its impact is expected to go far beyond the UK, influencing how global financial systems incorporate climate intelligence into regulation, disclosure, and investment. Institutions that act early can reduce their exposure, seize opportunities, and lead the next generation of climate-smart finance.
Key Takeaway
The UK’s Climate Financial Risk Forum is redefining how finance tackles climate change—turning resilience from a mere compliance task into a clear, investable strategy. By connecting climate policy, financial innovation, and data-driven decision-making, the CFRF offers a model for the global financial sector to shift from simply managing climate risk to actively financing resilience.
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