The Sustainable Finance Lab has called for enhanced standardisation in banks’ transition plans to facilitate better comparability and alignment across the financial system.
According to Environmental Finance, their findings have found significant disparities exist in how banks develop these plans, despite utilising common scenarios like the International Energy Organisation’s Net Zero Emissions by 2050. This variability complicates the efforts of regulators to evaluate and align financial institutions towards uniform environmental goals.
Gerdie Knijp, project manager at Sustainable Finance Lab, emphasised the benefits of a uniform approach. “If designed in a standardised way, supervisors could compare banks’ prudential transition plans and evaluate the degree of alignment for the whole financial system,” she noted. Her colleague, researcher Gaston Bronstering, added that these plans could significantly inform both micro- and macroprudential policies, aiding in more coherent financial regulation.
Moreover, the lab suggests that the European Banking Authority (EBA), which closed a public consultation in April 2024, should consider these discrepancies in their forthcoming guidelines on prudential transition plans and supervisory processes. Both Knijp and Bronstering believe that acknowledging the uncertainties tied to scenario differences and offering precise guidance could steer supervisory practices towards greater efficacy.
The EBA’s initiative to establish guidelines reflects a broader regulatory response to the increasing need for financial systems to align with global sustainability goals, indicating a shift towards more rigorous and consistent oversight mechanisms.
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