Integrating bank transition planning into prudential supervision

Climate transition plans are a versatile new tool for use by financial and non-financial firms, policymakers and prudential regulators. For banks, they are an important building block that supports their ability to respond adequately to short-, medium- and long-term risks arising from climate change. For central banks and prudential supervisors, assessing the transition plans and planning practices of banks can help overcome some of the limitations that existing prudential frameworks face when it comes to climate change risks, in particular by supporting the assessment of business models and the adequacy of banks internal governance and risk management. This report’s analysis is designed to support prudential authorities across jurisdictions as they integrate transition plans into their supervisory review and evaluation processes. It articulates how the different aspects of the emerging transition plan governance ecosystem fit together, summarises their common elements, and explains the role that prudential supervision should play within this ecosystem. It develops a framework for identifying how specific elements of transition plans can be integrated into existing supervisory assessment procedures, with a primary focus on climate transition plans.