The Network for Greening the Financial System (NGFS) has published a technical note aimed at helping micro-prudential authorities understand and engage with banks and insurers on climate-related targets within transition plans. It frames target setting as potentially consequential for business strategy, governance and risk profiles, even where micro-prudential supervisors typically neither require financial institutions to set climate targets nor enforce them. Using the International Sustainability Standards Board definition of climate-related targets in IFRS S2, the note sets out examples of mitigation and adaptation targets and common steps financial institutions take to set, calibrate and execute them, including defining scope and baselines, selecting reference pathways and scenarios, aligning business models and internal processes, and monitoring and disclosing progress. It also highlights risks from ineffective targets and processes, including greenwashing and litigation exposure, data and metric shortcomings, and governance and control lapses, and provides sample supervisory questions covering assumptions and dependencies, climate data strategy and governance, disclosure practices, and alignment between targets, risk appetite and broader risk management. The publication is issued alongside a companion note on interactions between climate scenario analysis and transition plans, and concludes an initial NGFS cycle of transition plan work that began in 2023. NGFS also signals it will consider elements of the technical note in a future update of its Guide for Supervisors.

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