Mandatory prudential transition plans could help banks manage the shift to net-zero and reduce their exposure to climate risk, says a paper published by the Grantham Research Institute on Climate Change and the Environment. Experts speaking in a webinar this week backed the paper’s conclusions and suggested the proposals could benefit the wider transition.
Voluntary agreements and, increasingly, regulation mean banks must put together transition plans showing how they plan to meet certain environmental objectives – particularly in the EU. Today, such plans generally need to demonstrate how a financial institution will bring its business model, strategy and investments in line with the commitment of the Paris Agreement to keep global warming below 1.5 degrees above pre-industrial levels. Going forward, however, transition plans will also need to cover nature goals, such as those in the Biodiversity Global Framework agreed at COP15 in Montreal in December 2022.
