The Financial Stability Board (FSB) has published a report on the relevance of climate transition plans for financial stability.
The FSB found that in providing forward looking information, climate transition plans can be useful to monitor climate-related risks to financial stability by:
- Facilitating firms’ strategy setting to inform better climate-related risk management;
- Informing investment decisions by addressing information gaps and reducing market failures; and
- Support authorities’ macro-monitoring of transition and physical risks both in the financial systems and the real economy.
However, their functionality is currently restricted by limited data availability and difference in scope, coverage and quality of key metrics. The report advocates for broader adoption of transition plans and continued efforts towards standardisation in order to make transition plans usable by financial authorities.