Prudential net zero transition plans: the potential of a new regulatory instrument

Net zero transition plans are a promising additional instrument for prudential supervisors to assess, address and bring distant financial risks into the present. To date, transition plans have primarily emerged as non-financial disclosure requirement and as such, their prudential application has been limited. In this article, we discuss the role that transition plans can play as a new regulatory tool in banking supervision. The article outlines steps towards incorporating transition plans into prudential policy, thereby enabling supervisors to effectively use transition plans as a forward-looking instrument to better manage and overcome some of the challenges associated with climate transition risks.

Dikau, S., Robins, N., Smoleńska, A. et al. Prudential net zero transition plans: the potential of a new regulatory instrument. J Bank Regul (2024). https://doi.org/10.1057/s41261-024-00247-w