On 14 January 2025, the Financial Stability Board (FSB) issued a report on The Relevance of Transition Plans for Financial Stability.

Background

The report looks at the role that financial and non-financial firms’ transition plans can play for financial stability assessments, in particular as a source of information for monitoring climate-related financial risks and vulnerabilities, and as a tool for helping to address some of those risks.

At present, information about transition plans is neither fully standardised nor widely disclosed. Some authorities require firms to prepare and disclose transition plans, while some others do not require transition plans nor envision using transition plans for prudential purposes in the near future.

The report presents the findings and considerations around the role transition planning and plans by financial and non-financial firms could play for financial stability, to provide information for monitoring system-wide climate-related financial risks (transition and physical risks) and vulnerabilities, and as a tool for helping to address some of those financial risks. The work forms part of the FSB’s Roadmap for Addressing Financial Risks from Climate Change and is intended to contribute to discussions on information and metrics in transition plans that could be useful for financial stability purposes. The findings are based on a survey of supervisory authorities, conversations with external stakeholders and industry bodies, and an outreach event with academics and industry participants.

Findings

The report finds that transition planning and transition plans can help address climate-related financial risks through three channels in that they:

  • Facilitate firms’ strategy setting, which contributes to better risk management.
  • Help inform investment decisions.
  • Can support authorities’ macro-monitoring of transition and physical risks both in the financial system and the real economy.

The annexes to the report cover:

  • Examples of guidance and disclosure frameworks for transition plan preparers and details of the ISSB Standards.
  • Key takeaways from the FSB outreach event on transition plans.
  • Current or planned requirements, guidance or standards on transition plans and planning.

Satoshi Ikeda, Deputy Commissioner for International Affairs and Chief Sustainable Finance Officer at Japan’s Financial Services Agency, who chaired the FSB group that prepared the report said: “Because of their forward-looking perspective, transition plans could help improve the monitoring of climate-related financial risks by financial authorities, but more work is needed to enhance their coverage, transparency, reliability and comparability.”