• Central bankers say climate transition risks should be treated as systemic financial risks
• The ECB has become the first major central bank to require prudential transition plans from supervised banks
• Policymakers warn reduced corporate sustainability reporting could weaken banks' climate risk assessments
• Former central bank leaders are calling for reforms to global finance to support climate transition
• A follow-up international conference in Tuvalu will continue work on transition finance and financial stability



Central banks must expand their traditional approach to financial stability if they are to manage the growing risks posed by climate change and the transition to a low-carbon economy, senior policymakers and former central bank leaders have warned.

The call comes as regulators increasingly view climate transition risk as a macro-financial issue rather than simply an environmental concern.

Speaking during a World Resources Institute webinar following the Santa Marta conference on transitioning away from fossil fuels, officials argued that central banks should play a more active role in preparing financial systems for structural economic change.

"Climate transition risks should be seen as systemic risks and need to be addressed now," said Sarah Amorim Torres, deputy advisor in the Prudential and Foreign Exchange Relations Department at Banco Central do Brasil.

While maintaining price stability and safeguarding financial systems remain the primary responsibilities of central banks, Amorim Torres acknowledged that approaches differ significantly across jurisdictions, particularly in relation to climate and sustainability risks.

Europe has already taken a significant step. Since January, banks supervised by the European Central Bank have been required to publish prudential transition plans explaining how they will identify, manage and mitigate financial risks arising from the transition to a low-carbon economy.

The requirement was introduced under the revised Capital Requirements Directive VI, making the ECB the first major central bank to embed prudential transition planning into supervisory expectations.

Supporters argue the plans give supervisors greater visibility into emerging vulnerabilities while encouraging banks to incorporate climate considerations into capital allocation, lending decisions and long-term strategy.

However, the move coincides with the European Commission's wider drive to simplify corporate sustainability reporting through its Omnibus package.

The reforms reduce reporting obligations for many companies, raising concerns that banks could lose access to important climate-related information needed to assess transition risks and develop robust prudential plans.

Industry groups have warned that reduced corporate disclosure may make it more difficult for financial institutions to evaluate clients' transition pathways and accurately measure climate-related credit and portfolio risks.

Amorim Torres said credible transition plans depend on clear national and sectoral roadmaps that provide businesses and financial institutions with greater certainty about the pace and direction of economic change.

Those issues featured prominently during the Santa Marta conference, where governments and financial stakeholders explored practical pathways for reducing dependence on fossil fuels while maintaining economic resilience.

One of the conference's principal outcomes was support for developing national and regional transition roadmaps that could help guide investment decisions and reduce uncertainty for financial markets.

The conference's final report, released during London Climate Action Week, described fossil fuel dependence as a source of broader macroeconomic and financial vulnerability.

Participants argued that climate transition has become a financial stability issue requiring closer coordination between governments, regulators and central banks.

Kjell Kuhne, director of the Leave It In the Ground Initiative, said the discussions demonstrated that central banks are central to the transition rather than peripheral participants.

Frank van der Vleuten, coordinating policy officer for climate finance at the Dutch Ministry of Foreign Affairs, said policymakers also need greater clarity over the role central banks should play alongside governments.

"Central banks have a different role from governments," he said. "Policymakers work with a short-term horizon... how do we bridge that gap in perspective to be more effective in the longer term?"

The urgency of those discussions was reinforced by geopolitical instability. Delegates met while many energy-importing economies were experiencing renewed energy price volatility linked to conflict in the Middle East, highlighting how fossil fuel dependence can amplify financial and economic shocks.