On 31 May 2023, the Network for Greening the Financial System (NGFS) published a report taking stock on financial institutions’ transition plans and their relevance to micro-prudential authorities.

Building on the conclusions of the previous NGFS report on ‘capturing risk differentials from climate-related risks’ which emphasised the importance of a forward-looking approach to assess climate-related risks, the NGFS took stock of the available frameworks and literature on transition plans from external bodies and an analysis on the current state of play in the regulatory landscape as it relates to transition plans among NGFS members. The NGFS also examined the relevance and extent to which financial institutions’ transition plans (i) relate to micro-prudential authorities’ roles and mandates, and (ii) could be considered and used most effectively within their supervisory toolkit and in the overall prudential framework.

The report highlights the following key findings:

  • While the potential of transition plans is widely recognised, there are multiple definitions of transition plans, reflecting their use for different purposes.
  • There is merit in distinguishing transition planning (understood as a process to design a transition strategy) from a transition plan (transparency to a specific audience).
  • Existing frameworks speak to a mix of objectives, audiences and concerns for transition plans but predominantly relate to climate-related corporate disclosures.
  • Transition plans could be a useful source of information for micro-prudential authorities to develop a forward-looking view of whether the risks resulting from an institution’s transition strategy are commensurate with its risk management framework.
  • There are some common elements to all transition plans which are relevant to assessing safety and soundness.
  • The roles that micro-prudential authorities play needs to be situated in the context of the actions of other financial and non-financial regulators rather than acting in isolation.

Following these findings, the NGFS will engage with relevant international authorities and standard setters, in order to advance their respective work on transition plans and planning in a coordinated manner. Furthermore, the sub-team will take forward additional work to advance the discussion on the relevance of transition plans to micro-prudential authorities’ mandates, supervisory toolkit, and the overall prudential framework.