Transition plans offer forward-looking insights that enhance financial stability assessments by helping identify and monitor climate-related financial risks. Both financial and non-financial firms’ transition plans are increasingly used by investors, regulators, and other stakeholders to understand companies’ climate strategies and net-zero transitions. These plans support financial stability through several key channels:
- They facilitate firms’ strategy setting, which contributes to better risk management.
- They help inform investment decisions.
- They can support authorities’ macro-monitoring of transition and physical risks in both the financial system and the broader economy.
For transition plans to be effectively used in financial stability and macroprudential assessments, they must meet certain conditions, including enhanced coverage, transparency, credibility, comparability, and availability of information. Broader adoption and ongoing international efforts toward standardisation are essential to making these plans practical tools for managing climate-related financial risks.
