The Financial Stability Board (FSB) has released a report titled "The Relevance of Transition Plans for Financial Stability," examining the role of climate transition plans in maintaining financial stability. These plans offer forward-looking insights into how companies might adapt their operations to climate risks, which can aid authorities in evaluating and monitoring climate-related financial risks.
Transition planning addresses climate-related risks through three main channels: aiding firms in setting strategies for better risk management, informing investment decisions by filling information gaps, and supporting macro-monitoring of transition and physical risks within the financial system and broader economy.
Currently, the use of transition plans for financial stability is still developing. These plans are primarily designed for business strategy rather than financial stability assessments and are limited in availability and consistency across firms.
Satoshi Ikeda, Deputy Commissioner for International Affairs at Japan’s Financial Services Agency, who chaired the FSB group responsible for the report, stated: “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.”
Efforts towards standardization and wider adoption of transition plans are essential to making them useful tools for financial authorities. The FSB emphasizes that addressing climate change's financial risks remains a priority. In July 2021, it published a roadmap outlining actions to be taken by international organizations over several years concerning firm-level disclosures, data analysis, vulnerabilities assessment, regulatory practices, and supervisory tools.
The FSB works internationally with national authorities responsible for financial stability across 24 countries and jurisdictions. It collaborates with international institutions and groups of regulators to develop effective policies ensuring global financial stability. The organization is chaired by Klaas Knot from De Nederlandsche Bank with its Secretariat based in Basel under the Bank for International Settlements' hosting.