Banks’ transition plan dependencies: from risks to opportunities

An important element of banks’ transition planning are factors that affect their ability to deliver on their strategic transition commitments, known as ‘dependencies’. They are also essential to assessments of banks’ risk management frameworks. Yet such assessments often underplay banks’ role as intermediaries that will channel finance across the economy over the course of the transition.

This policy insight explores new approaches to managing banks’ dependencies, with the aim of improving risk governance and providing a clearer view of transition-related opportunities. The authors focus on the new concept of ‘intermediated dependencies’, which arise where the delivery of a bank’s transition strategy depends on the behaviour, capacity or choices of clients and counterparties, and where outcomes are neither wholly external nor fully within the institution’s control.

Core recommendations

Banks should:

• Consistently identify dependencies on which their transition strategy and risk management depend, and apply a structured taxonomy that also captures intermediated dependencies.
• Identify dependencies linked to concrete management actions, including client engagement, lending criteria, product design, transition financing and sectoral approaches.
• Treat intermediated and some external dependencies as potential commercial opportunities.
• Explicitly link sustainable finance and climate solutions targets to identified dependencies rather than reporting them as standalone metrics.

Prudential authorities and policymakers should:

• Integrate dependency assessment into the transition risk supervisory toolbox.
• Assess how banks identify dependencies and whether they articulate credible levers for addressing them; and evaluate whether banks’ disclosed dependencies are internally consistent with other transition plan assumptions and targets.
• Treat repeated references to common dependencies across banks as potential signs of regulatory or coordination gaps that require policy attention.