Financial Regulation and Climate Change: Can Prudential Transition Plans Effectively Address Climate-related Financial Risks?

Central banks and financial supervisors face the formidable task of safeguarding financial stability in the presence of climate-related risks. These risks, which differ from conventional financial threats, are unpredictable, non-linear and affect various sectors. Current regulatory approaches are mainly based on historical data and cannot address climate

risks in a forward-looking manner. This is where prudential transition plans come in, an innovative tool that aims to integrate climate risks into the prudential framework. The proposed research explores whether prudential transition plans can effectively improve financial institutions' resilience by acting as a bridge between regulatory oversight and

climate objectives.