Climate transition plans for banks: European legislators on a razor’s edge

Can not read this email?
View it in your browser

Climate transition plans for banks: European legislators on a razor’s edge

Foreword

The proposal for mandatory climate transition plans for banks is slowly making its way through the regulatory debate. Proposed by the European Commission and confirmed by the EU Council, this proposal has now also been taken up by the European Parliament. This obligation could be a game-changer for financial risk management and the alignment of financial flows with the transition to a low-carbon economy. It could lead banks to limit their activities in climate-damaging activities, adjust their business models, review their strategies as well as their governance and risk management procedures.

But at this stage, while the principle of transition plans exists in the three positions of the Commission, the Council and the Parliament, the exact wording differs in terms of ambition and clarity. In order for these plans to make a real difference, three key parameters will need to be clarified in the trialogue negotiations.

The first parameter is the nature of these mandatory climate transition plans. If the obligation is limited to transparency requirements, the focus will be on the need to publish a plan and not on the need to actually implement it. This is one of the problems with, for example, transition plans adopted voluntarily by financial institutions. Conversely, if banking supervisors are given the mandate to monitor these transition plans as part of the Supervisory Review and Evaluation Process (SREP), they will have several tools at their disposal to ensure their proper implementation.

#FromThePast

Implementing prudential transition plans for banks

The European Union has made rapid progress on the issue of transition plans for banks. Among what remains under debate is whether and how these transition plans should be integrated into prudential regulation, which would open the way to numerous possibilities of action and sanctions by supervisors. In order to understand the value of such an integration, I4CE conducted in 2022 a qualitative analysis of the expected impacts. We invite you to (re)read our study on this topic.

The limitations of voluntary climate commitments from private financial actors
Why do we need public authorities to regulate private finance, for example through mandatory transition plans for banks, instead of relying on voluntary climate initiatives from private financial actors ? Because, as highlighed in this Policy Brief published by I4CE a month ago, these initiatives encounter important structural obstacles that limit their effectiveness. While beneficial and worthy of encouragement, we cannot expect these initiatives to deliver more than they are realistically capable of achieving.

Video 2minOn #TransitionPlan for banks

In 2 minutes, Julie Evain from I4CE explains why it is necessary to introduce a mandatory transition plan for banks and the implications for banks and banking supervisors.

#Tweets

Suscribe to the mailing list

Our emails are no longer appropriate?

You can update your preferences or unsuscribe from our emails..