Implementation of prudential transition plans

Context

With the reform of the global financial regulation or ‘banking package’ under Basel 3, the European Union seeks to better integrate climate issues and ESG-related concerns into its prudential framework. As transition finance emerges as the need of the hour, EU policymakers, financial regulators and supervisors are looking to develop the enabling tools for the private financial sector. This project aims to integrate prudential banking transition plans into the pillar 2 supervisory process as part of the ongoing policy debate for the EU’s Capital Requirements Directive (CRD). This is a crucial policy window to set the regulatory and supervisory rules that will guide the implementation of banking transition plans in the coming years. 

Objectives

(Updated in 2024) The trialogue meetings between the EU Council, Parliament and Commission regarding the CRD concluded in December 2023 with the inclusion of banking transition plans in the prudential framework. The EBA (European Banking Authority) is mandated to develop supporting guidelines, including its supervisory expectations around prudential transition plans and ESG risk management practices. I4CE will push and disseminate policy recommendations to strengthen the ambition of these implementation guidelines. Our work will focus on two areas in banking transition plans: the management of stranded asset risks and the integration of a coherent variable pay scheme. Our primary objectives are:

To strengthen the ambition of the EBA supervisory guidelines on transition plans and risk management supported by:

• Our recommendations regarding the management of stranded asset risks in financial portfolios
• Our recommendations regarding the coherence of variable remuneration policies

To raise awareness amongst EU decision-makers and to reinforce the stakeholder community on sustainable finance about the importance of a transition finance framework

• Dissemination and outreach activities organized with a wide stakeholder group including European supervisors, central banks and national supervisors, commercial banks, think tanks, NGOs 

Partners 

The outputs of this project will be solely produced by I4CE .  

The project is funded by European Climate Foundation (ECF). 

Period

March 2023 – March 2025