Greater standardisation and broader adoption of climate transition plans are needed if they are to be used to monitor financial stability risks, according to a report published by the Financial Stability Board (FSB). While such plans are seen as essential tools for measuring and monitoring climate-related financial risks, their use for financial stability purposes is still at an early stage, says the FSB. The report identifies several limitations and challenges in using transition plans for financial stability assessments. Firstly, transition plans are not inherently designed for financial stability assessments, as their primary purpose is business strategy and target setting. Secondly, transition plans are currently developed by a limited population of firms, with wide differences in format, content, and methodological assumptions. Thirdly, mechanisms to ensure the reliability of information in transition plans are still emerging. The implementation of the International Sustainability Standards Board’s (ISSB) sustainability disclosure standards and the development of a global assurance framework for sustainability-related reporting could improve disclosure comparability and reliability, thereby enhancing the usefulness of transition plans for financial stability. “These developments may also enable financial institutions and non-financial firms to make more informed decisions and adjust their strategies in response to climate related risks, thereby also supporting financial stability,” the report says.
