Long-term planning such as that involved in transition planning is a novelty as far as the risk management practices of most European banks go. As such, some novel elements will need to be in place to, on the one hand, support banks’ efforts, and on the other, allow for a robust challenging of these plans by competent authorities.
There are two elements that I think are particularly crucial for this next stage for banking supervision. First, we will need to have in place science-based European transition scenarios. So far, we have been advising banks to refer to the International Energy Agency’s reference scenarios. But these are global scenarios and they do not reflect the ongoing developments within the European legal framework.