Climate transition plans (CTPs) are a vital instrument for banks to guide their efforts towards achieving the goal of staying beneath 1.5°C warming. Several legal instruments from the European Union (EU) recognize this importance and require banks to develop CTPs. However, recent developments in the EU seriously undermine the development of climate transition plans for banks. After the European Commission’s Omnibus proposal to ‘simplify’ sustainability reporting and due diligence frameworks, the European Parliament’s negotiation position includes the deletion of the climate transition plan provision. Does this mean that mandatory climate transition plans are dead? Quite the contrary, while banks remain subject to robust risk-based climate transition requirements, climate transition plans should be perceived as a value-driven instrument.
Climate Transition Plans are banks’ ‘Make-or-Break’
CTPs are multi-year roadmaps consisting of targets and actions which specify how companies aim to bring their business model and strategy in line with specific climate objectives. Without a well-defined CTP, companies and banks risk drifting off course with scattered activities that miss the aim of climate goals.
Banks play a special role in the climate transition, because their operations involve risky decisions which affect the whole economy and society, with systemic consequences. This role is also recognized in the Paris Agreement, including the aim to make finance flows consistent with a pathway towards low greenhouse gas emissions. However, this transition is not going into the right direction, as we are on track to achieve global warming of 3.2°C. The alarm bells have rung, and CTPs should be taken seriously, as delays in the transition pose economic damages for banks, the real economy, and piles up even greater costs for society.
The variety of Climate Transition Plan Obligations
The legal landscape for climate transition plans in the EU is originally shaped by three key directives; the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and Capital Requirements Directive (CRD6) original texts have obligations in place for banks’ CTP. Under the CSRD, banks are required to disclose information about their climate transition plans, but this provision is essentially disclosure-oriented and not strictly mandatory. Banks can also state the absence of a plan and indicate a future adoption date. This makes it possible to delay meaningful transition planning. In contrast, the CSDDD originally contained a stronger provision. Banks in scope were required to not only adopt but also implement a climate transition plan aimed at aligning their business model with the 1.5°C goal of the Paris Agreement. Meanwhile, the CRD6, which comes from the Basel Framework to ensure a global level playing field on financial regulation for international banks, stands apart as a prudential regime. This directive mandates that banks develop and monitor specific plans to address financial risks arising from ESG factors, including climate transition risks, with quantifiable targets and processes. The CRD6 integrates climate transition planning within overall risk management practices and financial stability, ensuring that banks remain subject to robust supervisory expectations.
The Omnibus tried, but the game is not over for Climate Transition Plans
The Omnibus package originated as a simplification proposal from the European Commission, aiming to streamline and reduce the administration burden of the EU’s sustainability reporting and due diligence frameworks. The Omnibus process has signalled a significant shift, moving away from binding obligations and detailed targets towards softer language and a focus on optional elements. After a turbulent legislative process, the European Parliament formally adapted the final text on December 16 2025. In spite of disappointing results, there was a slim hope that the climate transition plans would not be removed in the final negotiations between the Parliament and Council. However, in the final political agreement, the climate transition plan requirement is taken out of the CSDDD, which makes it more challenging to mandate the right level of climate action and to reach global climate targets.
Nevertheless, banks remain accountable, as the Omnibus does not affect the CRD6 provisions on the development of CTPs. This makes the CRD6 a regulatory ‘sleeping giant’, as it is less visible in the sustainability discourse and excluded from the Omnibus saga, but powerful in terms of prudential supervision. Banks will remain legally obligated to implement transition requirements through the lens of financial stability.
CRD6 and Beyond: Unlocking value through Climate Transition Plans
The CTP provision of the CRD6 is specifically tailored to banks to ensure robustness towards ESG risks. Banks have the obligation to set out specific plans to address financial risks arising in the short-, medium-, and long-term from ESG factors. The requirements of the CRD6 are robust and far-reaching, covering strategic objectives, granular emission targets, and ongoing risk assessments. Even though it is a risk-based CTP provision, its scope ensures that banks embed climate action into the core of their business strategy.
While the CRD6 provides a strong legal reason for banks to develop and implement climate transition plans, the true value of a CTP goes beyond regulatory compliance. A credible climate transition plan also acts as a value protective shield from supervisory expectations. The recent penalty imposed by the ECB on the Spanish bank ABANCA for inadequate climate risk assessment is the first climate-related penalty issued by the ECB. Without a robust CTP, banks expose themselves to financial damages and reputational harm. Whether there is a CRD6 or not, if banks fail to respect the ECB’s guidelines on climate and environmental risks, they risk being penalized. The creation of a credible climate transition plan is a key instrument to manage this.
Going beyond risk management, strong climate transition plans enable banks to create long-term value. As climate change changes the entire economic landscape, banks must adapt their strategies and way of financing to remain resilient. By proactively planning for climate risks and opportunities, banks position themselves to ensure their business models are robust and future-proof for the increasing challenges that climate change will bring.
The Journey of Climate Transition Plans for Banks continues
Banks should not feel relieved by the weakening of the climate transition plan obligations in EU legislation due to the Omnibus. CTPs remain a crucial legal and strategic instrument to reduce climate and environmental risks, and for building a future-proof business model. Regardless of what happens in Brussels, now is the time for banks to proactively develop and implement robust CTPs not only to meet regulatory and supervisory expectations, but to create long-term value for their own business, the economy, and society.
