NGFS publishes a stock-take on Transition Plans

The NGFS has released a report that examines emerging practices related to climate transition plans and evaluates the role of central banks and supervisors in relation to these plans.
The report was published during the Green Swan Conference 2023, which was co-organized by the NGFS, the Bank for International Settlements, the Central Bank of Chile, and the South African Reserve Bank. Building on the previous NGFS Report on ‚Capturing risk differentials from climate-related risks,‘ the network assessed the recent development of transition plans by corporates and financial institutions. It also explored the relevance of these plans to micro-prudential authorities‘ roles and mandates, as well as their potential usefulness within the supervisory toolkit and prudential framework.
The NGFS identified six key findings and proposed steps to further advance the understanding of transition plans‘ relevance to micro-prudential authorities. The network acknowledges that transition plans can offer valuable insights into the real economy’s journey toward a net-zero future. Financial institutions are encouraged to develop their own transition plans and engage with entities they finance to align with their respective plans. The forward-looking information provided by these plans will be instrumental in mobilizing private finance to support the transition.
The report provides details on the stocktake conducted by the NGFS regarding financial institutions‘ transition plans and their relevance to micro-prudential authorities. It reviews existing frameworks, emerging literature, and the regulatory landscape related to transition plans among NGFS members.
The following key findings were identified:
1. There are multiple definitions of transition plans, reflecting their various purposes.
2. Distinguishing between transition planning (designing a transition strategy) and a transition plan (transparency to a specific audience) can be valuable.
3. Existing frameworks primarily focus on climate-related corporate disclosures and address a mix of objectives, audiences, and concerns.
4. Transition plans can provide micro-prudential authorities with forward-looking information to assess the compatibility of an institution’s transition strategy with its risk management framework.
5. Common elements exist in all transition plans that are relevant to assessing safety and soundness.
6. The role of micro-prudential authorities should be considered within the context of actions taken by other financial and non-financial regulators, rather than in isolation.
Following the key findings, the NGFS will pursue actions in two main areas. Firstly, the network will engage with international authorities and standard setters such as the FSB, BCBS, IAIS, and IOSCO to coordinate efforts in advancing their work on transition plans and planning. Secondly, based on the findings of Phase 1, the NGFS sub-team will undertake additional work to explore the relevance of transition plans to the mandate, supervisory toolkit, and overall prudential framework of micro-prudential authorities.