The Good Transition Plan

Climate Action Strategy Development Guidance for Banks & Lending Institutions

GTP.png

Image by Xue Bai

 

In October 2021, the Climate Safe Lending Network published The Good Transition Plan as a practical, actionable guide for banks to create effective climate transition plans.

The Good Transition Plan gathers the best thinking, emerging best practices, and stakeholder expectations from over 100 climate-finance experts and professionals from around the world. It presents a structured approach to net-zero planning, with practical insights from sustainable finance leaders, including bankers, investors, policymakers, civil society organizations, and academics.

The Good Transition Plan:

  • Offers guidance on how banks can calibrate what ‘good’ means, given the current scientific understanding of climate change and local market and policy contexts.

  • Considers broader environmental and social impacts to help banks design a framework that considers all the relevant sustainability factors.

  • Contains a roadmap for banks to embark on the transition planning process, along with practical advice, case studies and checklists, including top-down and bottom-up approaches and some practical ideas for implementation.

This guide sets out practical ways to help accelerate change and help banks to:

  • Ensure a strong governance framework and accountability for the transition plan.

  • Embed due diligence and apply a ‘know your carbon’ (KYCO2) approach to client assessments.

  • Measure and support real world impact while supporting clients to transition.

  • Manage relationships with clients and other stakeholders who are affected by the bank’s decarbonization plans, including a rapid end to the financing of new fossil fuel exploration and deforestation.

  • Align advocacy and lobbying to be consistent with climate goals and steer industry alliances to support the transition.

The elements of a Good Transition Plan

 

Governance & Organizational Development

  • Organizational structures that support climate plans

  • Embed climate change in culture

  • Lock climate into strategy and purpose

  • Create a learning and review cycle

  • Support decision making with key climate policies

Net-Zero & Paris-Aligned Targets

  • Set a net-zero target between 2030 and 2050 using NZBA principles

  • Scenarios should be selected and updated to reflect a climate-safe world

  • Set interim 2030 targets for each covered sector

  • Anchor the highest-level ambitions in a strategy development process by reaching for 2030

Stopping Flows of Finance to Fossil Fuels & Deforestation

  • Implement a near-term end (2022) to all expansion and exploration of fossil fuels and deforestation, in line with leading practice

  • Assess legacy fossil fuel and deforestation assets and create reduction pathways

  • Develop product features to support reductions

  • Create an engagement plan for all the affected stakeholder groups

  • Analyze the systemic impact of the bank’s decisions on the wider market

Financing Innovation & Drawdown

  • Invest directly in net-zero technologies and startups

  • Focus bank innovation labs on climate

  • Review risk appetite policy to support climate innovations

Measurement, Disclosure & Reporting

  • Include the full extent of the bank’s business

  • Measure the real economy impact of ‘delta’ as assets decarbonize

  • Use best available data and continuously improve data quality

  • Onboard new clients - introducing “KYCO2”

  • Enhanced due diligence - measure more than climate: incorporate full-spectrum sustainability

  • Use clear accounting principles if using ‘negative emissions’

Decarbonizing Balance Sheets & Economies

  • Proactive dialogue with clients on their climate strategies

  • Support bank relationship manager training to develop transition expertise in their field

  • Offer pricing structures to incentivize sustainability and climate goals

  • Link the demand for ‘green’ to drive the development of green assets

  • Provide sectoral products and technical assistance

  • Just Transition: integrate broader social and environmental factors by applying different lenses to strategy

  • Consider adaptation, resilience, and the needs of vulnerable communities

Agency & Broader Influence

  • Engage in peer learning and collaboration

  • Ensure consistency and reinforcement via all lobbying, advocacy, and industry engagement

  • Recognize the full extent of agency within a client relationship

 

What climate-finance leaders are saying about this guide:

“We welcome the addition of this guide to the global conversation on how the banking sector can be a key catalyst in the drive to urgently and practically address the triple planetary crises of climate change, nature loss and pollution.”

- Puleng Ndjwili-Potele, Banking Lead (Interim), United Nations Environment Programme, Finance Initiative

“This is a strategists’ guide to thinking through the issues. Whilst technical aspects might get updated, The Good Transition Plan speaks to the fundamental mindset shifts that banks need to address before they can really get moving.”

- Ivan Frishberg, Chief Sustainability Officer, Amalgamated Bank, Climate Safe Lending Network Design Team Member & Partnership for Carbon Accounting in Financials

“The Good Transition Plan adds crucial strategic, human and practical insights to the emerging technical literature in this area.”

- Celine Suarez, Managing Director & Head of Corporate Sustainability and Reporting at Morgan Stanley

“Banks don’t like to be the policeman and are reluctant to engage with their clients about lowering their GHG emissions towards net zero. …If you are serious about this, you cannot stay silent, you cannot hide, you must speak out.”

- Jacob Waslander, Dutch Ministry of Foreign Affairs, formerly finance lead for World Resources Institute


“Being honest about problem areas of the balance sheet such as coal will help to build trust; we can’t make progress if we only talk about the good assets.”

- Rebecca Self, Director of Sustainable Finance at South Pole and former CFO of Sustainable Finance at HSBC Holdings

“The Good Transition Plan has helped make us ask some searching questions we hadn’t asked before.”

- Madeleine Ronquest, Head of Environmental and Social Risk, Climate Change at FirstRand

 

Acknowledgments

The project and this report would not have been possible without the contributions of more than 100 industry participants and experts who attended CSLN’s network convenings in May 2021 and September 2021 and contributed to roundtables, interviews, a consultation survey, and provided written comments on the draft paper. We would like to thank the following individuals and organizations for their insights:

 

Alberto Gervasini, ING

Alison Coates, Vancity Credit Union

Annabel Ross, Cambridge Institute for Sustainability Leadership

Celine Suarez, Morgan Stanley

David Barmes, Positive Money

Dominic Tighe, COP26 Private Finance Hub

Emma Jenkins, Carbon Disclosure Project

Huw Davies, Make My Money Matter UK

Jacob Waslander, Dutch Ministry of Foreign Affairs (formerly finance lead for Word Resources Institute)

Jon Dennis, World Wildlife Fund

Kate Levick, E3G

Lauren Compere, Boston Common Asset Management

Leslie Harroun, Democracy Collaborative

Lydia Hascott, Finance Innovation Lab

Madeleine Ronquest, FirstRand

Mahesh Roy, Carbon Disclosure Project

Marie-Aimee Boury, Societe Generale

Nicole Pinko, Climate Policy Initiative

Rebecca Self, South Pole

 

The Climate Safe Lending Network would like to thank the following organizations for their input:

Aequo Shareholder Engagement Services, Inc., Amalgamated Bank, As You Sow, Boston Trust Walden Company, Central Bank of Hungary, Centre for Climate Repair at Cambridge, Ceres, Climate Disclosure Project, Confluence Philanthropy, FAB, Ecology Building Society, Finance Watch, FirstRand, The Garrison Institute, GIB AM, Grantham Research Institute on Climate Change and the Environment, Group of Thirty, ING, Institute for Social Banking, Land Bank, Make My Money Matter, Morgan Stanley, Piraeus Bank, Precovery Labs, Predistribution Initiative, Reclaim Finance, Resilient Cities Network, SEB, SocGen, Triodos, UBS, Vancity, World Benchmarking Alliance and many other banks who gave their input. Please note that the contents of this paper do not necessarily represent the views of any of these organizations.