In a recent report released by the NGFS, options for the supervisory review of transition plans were outlined, focusing on micro-prudential perspectives. The report builds on previous work and emphasizes the importance of credible transition planning and plans, as well as the role of supervisory authorities in assessing their credibility.
The report suggests three potential ways to operationalize the transition plan review process by supervisory authorities. This includes direct monitoring by Micro-Prudential Authorities, reliance on Third-Party Evaluations, and a Collaborative Review Process involving both authorities and external evaluators.
Regarding the reliance on third-party evaluations, the report highlights the importance of jurisdiction-specific, reliable, and standardized evaluation criteria. However, a challenge identified is the lack of an international framework for accrediting verifiers for transition planning and plans.
NGFS acknowledges the ongoing work needed to understand the interaction between scenario analysis and transition planning, as well as the development of guides for supervisory authorities in engaging with financial institutions' target-setting from a micro-prudential perspective.
The NGFS report encourages a proactive approach in incorporating climate and ESG insights into the risk assessment process, emphasizing sustainable finance and the importance of addressing climate change risks in the banking sector.
As the NGFS continues its efforts in enhancing supervisory practices related to transition plans, the collaboration between authorities and third-party evaluators remains a key focus for ensuring the credibility and effectiveness of these plans.
