A new model for transparency in banks

Banks are at the centre of the global transition to net zero, providing financing and facilitation for investment in the economies of the future. To fulfill this role credibly, they need clear, actionable strategies for aligning their operations with climate goals. A transition plan does exactly that, setting out how a bank will align its business with a net-zero economy and detailing the targets, strategies, and actions that it will take to stay on a sustainable pathway.  

For several years, banks have been committing to align their activities with a net-zero-by-2050 economy, under the leadership of investor coalitions such as the Net Zero Banking Alliance, the Glasgow Financial Alliance to Net Zero, and the Institutional Investor Group on Climate Change.  

However, in their current form, there remains a lack of clarity and comparability in how these ambitions are being implemented. As reported in an earlier paper The Transition to Net Zero: Lessons learned from bank disclosure, existing disclosures do not always provide investors with clear and comparable views of the breadth and depth of a bank’s transition efforts, making it difficult to assess the bank’s pathway or level of ambition. 
 

Raising the bar on transition planning

To help, Climate Bonds has published Bank Transition Disclosure: Recommended Best Practice, new guidance that can support banks in improving the transparency, consistency, and scope of their transition plan disclosures, balancing robustness with flexibility, and other stakeholders across the financial system, including investors, to assess the credibility of a bank’s transition plan. The aim of the guidance is simple: to support the market to move beyond current norms and enable a rapid transition to a net-zero economy.  

The guidance is applicable to all banks except multilateral or national development finance institutions, which have a different role and set of tools to address their transition.  
 

Six key features of the guidance  

1. The focus is on bank decarbonisation transitions. Broader socio-economic-environmental aspects of this transition are also addressed but to a lesser degree.
2. The guidance has in its scope services to corporate, sovereign, and financial institution clients.
3. It covers the following products within the banking book: corporate lending, mortgages, motor vehicle loans, project finance, investment in securities, M&A and advisory, and underwriting.
4. It addresses financial exposure to high-emitting sectors and climate solutions; and emissions exposure to high-emitting sectors.
5. It focuses on transparency over the degree of alignment with 1.5C sectoral pathways/taxonomies, highlighting gaps between targets and the expected impacts of strategies and action plans.
6. It is structured around the six key elements of a transition plan: commitment, baselines and targets, delivery strategy, beyond emissions, governance, and reporting and review. 

Six principles underpinning the guidance 

1. Signposting: The guidance acts as a signpost for banks, outlining what they should address in their transition plan disclosures. It will stretch many banks beyond current norms, and encourages banks to plan ahead for more ambitious rounds of disclosure and implementation.
2. Transparency and comparability: A core goal is to promote greater transparency and comparability across banks’ transition plans. This includes clarity over financial and emissions exposure, consistent metrics, and alignment with credible pathways to a global net zero economy by 2050.
3. Simplified and practical metrics: The guidance emphasizes simplified, practical indicators, particularly around emissions and financial exposure, which are aligned with the rapid transition required to meet global climate goals.
4. Global applicability: Designed for use across jurisdictions, including emerging economies, the guidance incorporates flexibility in areas such as target-setting and decarbonisation action prioritisation while maintaining a consistent framework for all banks.
5. Publicly available tools and data: The guidance references publicly and freely available data sources, methodologies, and taxonomies, supporting disclosure that is accessible, credible, and based on independent, science-aligned benchmarks.
6. Building on existing frameworks: The guidance builds on and complements other transition assessment tools and frameworks, offering additional features and refinements based on Climate Bonds’ own market insights. 

What’s next? 

The guidance adds to Climate Bonds’ broader toolkit for financial institutions, including the previously released “Entity Certification Checklist” and “Navigating Corporate Transitions: A Tool for Financial Institutions” assessment framework, Climate Bonds’ sectoral pathways, and certification of transition finance instruments, and now also the newly published guidance on sovereign transition plans: Unlocking investment for sovereign transition:  An investors’ guide.  

Climate Bonds is committed to supporting financial institutions develop and implement their transition plans.  Please contact us if you would like to discuss any elements of this guidance or we can help you to implement it.  Looking ahead, Climate Bonds may explore certifying bank transition plans based on this guidance.  

By lifting the bar on transparency and ambition, this new guidance supports banks in building credible, science-aligned transition plans and empowers stakeholders to keep those plans on track. Read the full report here.  

‘Til next time!