Page Contents
Related areas
Key contacts
Under the Capital Requirements Directive (CRD) (2013/36/EU) (as amended by CRD VI ((EU) 2024/1619)), the management body of EU credit institutions will be required to develop and monitor specific plans that include quantifiable targets and processes to monitor and address short, medium and long term financial risks arising from ESG factors (CRD transition plans). Sometimes referred to as ‘prudential transition plans’, these risk-focussed transition plans are different, but closely linked, to separate non-prudential transition plans required under other EU sustainability laws. Credit institutions will need to have their CRD transition plans in place by 11 January 2026, which is the CRD VI implementation date.
Additionally, national regulators will be required to assess and monitor the development of credit institution practices concerning their CRD transition plans and to assess their “robustness” as part of the supervisory review and evaluation process (SREP).
The European Banking Authority (EBA) has provided further guidance and supervisory expectations in their January 2025 Guidelines on the management of ESG risks (the guidelines). While most credit institutions will need to comply with the guidelines by 11 January 2026, the EBA delayed the requirements for small and non-complex institutions (SNCIs) until 11 January 2027. The guidelines also provide other proportionality measures for SNCIs and other non-large institutions in the context of the key contents of plans. Curiously, there is no corresponding delay contained in the text of CRD VI with respect to the legal requirement to develop and monitor the CRD transition plans.[1]
This article provides an overview of:
Legal and ESG context of CRD transition plans
Article 76(2) CRD requires credit institutions to develop the CRD transition plans, while Article 87a(4) CRD gives national regulators the supervisory mandate. The related ESG risk management framework obligations on credit institutions under both CRD VI and the Capital Requirements Regulation III are also important. The guidelines address not only CRD transition plans but also (i) reference methodology for the identification and measurement of ESG risks, and (ii) minimum standards and reference methodology for the management and monitoring of ESG risks.
Credit institutions may also be required to prepare transition plans under other EU sustainability initiatives, such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). While the obligations and aims under those frameworks differ from CRD transition plans, where relevant, the concepts and associated guidance relating to transition planning will be useful for in-scope institutions. Addressing those credit institutions, the guidelines recommend that they adopt an “integrated, holistic internal approach” between CRD and the other various pieces of EU legislation which have specific but complementary purposes to the CRD.
The stated objective of the CRD transition plans is to ensure that institutions “comprehensively assess and embed forward-looking ESG risk considerations in their strategies, policies and risk management processes”. While the CRD transition plans will not require institutions to exit or divest from greenhouse gas-intensive sectors, the EBA encourages institutions to:
Key content requirements of CRD transition plans
Credit institutions will need to ensure that their CRD transition plans comply with the provisions of CRD VI in the first instance. For example, Article 76(2) CRD provides some references to include or consider in relation to:
The guidelines will then serve as a reference point as to what the CRD transition plans should contain. While the guidelines provide credit institutions with the “processes, principles, core expectations and main features … of sound plans”, the EBA notes that institutions will have the “flexibility and responsibility” as to the “specific details and levels of targets.”
Credit institutions will find instructive the sections of the guidelines relating to governance (which includes roles and responsibilities), transition planning (such as relevant time horizons, milestones, and metrics), and the monitoring, review, and update of the CRD transition plans.
Section 6.4 of the guidelines on the key contents of CRD transition plans will be particularly useful for identifying plan content. These requirements are further presented as a “supporting tool” table, which is included in an annex to the guidelines. The table in the annex provides examples, references and potential metrics (qualitative and quantitative) that credit institutions may consider as they structure their CRD transition plans. Where relevant, the table in the annex cross refers to other EU frameworks under CRD Pillar 3 reporting and CSRD and the European Sustainability Reporting Standards (ESRS). This will therefore be an invaluable tool for credit institutions in their CRD transition plan preparations.
Credit institutions will also be interested in the guidelines’ proportionality measures when drawing up their CRD transition plans. While large institutions will need to include all the key contents of section 6.4 in their CRD transition plans, SNCIs and other non-large institutions must include “at least” those aspects specified by the guidelines (see Table 1).
We have provided a summary guide to these key requirements in Table 1 below, which we hope readers will find helpful. This covers: (i) the key contents of CRD transition plans per section 6.4 of the guidelines, and (ii) whether those aspects must be applied by all institutions or large institutions. The full “supporting tool” table in the annex to the guidelines should be consulted for the EBA’s suggested examples, references and potential metrics.
Interaction with other EU sustainability obligations
While the guidelines focus on CRD transition plans, the EBA emphasised that credit institutions will need to develop a:
“single, comprehensive strategic planning process that covers all regulatory requirements stemming from applicable legislation … and all relevant aspects, including inter alia business strategy, risk management, due diligence, and sustainability reporting”
Such requirements could include CSRD, CSDDD, and/or sectoral legislation. A key distinguishing feature of CRD transition plans that some credit institutions may find useful is that they do not need to be publicly disclosed.
The guidelines emphasise that credit institutions subject to CSRD sustainability reporting requirements should ensure consistency between (i) the information used to comply with the guidelines and (ii) the information disclosed in accordance with the ESRS. The EBA further advises institutions to rely on the already available “materially identical or significantly comparable” relevant information to the extent possible.
Supervisory perspective on CRD transition plans and transition planning
The Central Bank of Ireland (CBI) will have the power to assess and monitor the development of credit institutions' practices concerning their CRD transition plans, as part of their ESG strategies and risk management. This assessment must take into account “sustainability-related product offerings, their transition finance policies, related loan origination policies, and ESG-related targets and limits.” Under SREP, the CBI will also be required to assess the robustness of credit institutions’ CRD transition plans.
In May 2025, the CBI published an information note on Planning for the Transition to Net Zero, which is intended to be a transitioning tool for firms preparing their transition plans (not just those under the CRD). The information note sets out the CBI’s approach to the transition planning process by providing the following key principles:
The CBI noted that the above principles could form part of the “key components” of a transition plan, which is set out in more detail along with other components in Table 2 of the information note.
In the context of supervision, boards should be cognisant of their key role with respect to CRD transition plans. Article 76 CRD specifically places the obligation on the management body to develop and monitor CRD transition plans. The guidelines further specify that the management body should be:
“responsible for the approval of the plans and should oversee their implementation, including being regularly informed of relevant developments and progress achieved in relation to the institution’s targets and taking decisions on remedial actions in case of significant deviations.”
Final considerations
Many credit institutions will be aware that the guidelines were published just one month before the EU’s simplification package. The stated aims of this “Omnibus” package were to make sustainability reporting “more efficient and less burdensome” by narrowing the scope of CSRD/CSDDD and delaying their application dates. CRD, however, was not included in the package and there have been no indications that there will be any further delay. Given the pace of policy developments on ESG, further changes cannot be ruled out until such time that Member States have published their implementing legislation transposing CRD VI.
In the meantime, credit institutions would be well advised to take stock of their CRD transition plan preparations to ensure that they meet their obligations from 11 January 2026.
[1] SNCIs should be aware, however, that CRD VI does require Member States to ensure a proportionate application for SNCIs, indicating in what areas a waiver or a simplified procedure may be applied, and there may therefore be further changes when Member States transpose CRD VI before the 11 January 2026 application date of CRD VI.
Table 1 – Key contents of the plans
Strategic objectives and roadmap of the plan |
|
Key contents of plans |
Required for |
High-level overarching strategic objective to address ESG risks in the short, medium and long term, in line with overall business strategy and risk appetite. |
All institutions |
Comprehensive set of long-term goals with intermediate milestones to ensure resilience of the business model towards ESG risks, including consistency of business structure and revenues with such milestones. |
All institutions |
Key assumptions, inputs and background information relevant to the understanding of institutions’ objectives and targets, including selection of central or reference scenario(s) and institutions’ conclusions stemming from the outcomes of materiality assessments of ESG risks, portfolio alignment assessments and other scenario analyses. |
Large institutions only |
Targets and metrics |
|
Key contents of plans |
Required for |
Quantitative targets set to address ESG risks, including those stemming from the process of adjustment towards the legal and regulatory sustainability objectives of the jurisdictions where the institution operates and broader transition trends towards a sustainable economy, and metrics used to monitor ESG risks and the progress in achieving the targets. |
All institutions |
Portfolios, sectors, asset classes, business lines and where applicable economic activities (i.e. individual technologies) covered by targets and monitoring metrics, ensuring that the scope of targets and metrics sufficiently reflects the nature, size and complexity of institution’s activity and its ESG risks materiality assessment. |
All institutions |
Time horizons over which targets and metrics apply. |
Large institutions only |
Governance |
|
Key contents of plans |
Required for |
Governance structure for the plans including roles and responsibilities for the formulation, validation, implementation, monitoring and updating of the plan, including escalation steps in case of deviation from targets. |
All institutions |
Capacity and resources-related actions to ensure appropriate knowledge, skills and expertise for effective implementation of the plan, including ESG risk-related trainings and internal culture. |
Large institutions only |
Remuneration policies and practices to promote sound management of ESG risks in line with the institution’s objectives and risk appetite. |
Large institutions only |
Data and systems used for the transition planning process. |
Large institutions only |
Implementation strategy |
|
Key contents of plans |
Required for |
Overview of short-, medium-, and long-term actions taken or planned in core banking activities and processes to achieve the plan’s targets, including how the institution embeds the plan’s objectives into its decision-making process and its regular risk management framework, complemented by information on the observed effectiveness or estimated contribution of each action to the relevant target(s). |
All institutions |
Adaptations to policies and procedures on financial risk categories and to lending and investment policies and conditions on key economic activities, sectors and locations. |
All institutions |
Changes introduced to the mix and pricing of services and products to support the implementation of the plan. |
Large institutions only |
Investments and strategic portfolio allocation supporting the institution’s business strategy and risk appetite in relation to ESG risks, including information on sustainability-related and transition-related products and services, and how any changes in strategic financing choices are accompanied by commensurate risk management procedures. |
Large institutions only |
Engagement strategy |
|
Key contents of plans |
Required for |
Policies for engaging with counterparties, including information on the frequency, scope and objectives of engagement, types of potential actions and escalation processes or criteria. |
All institutions |
Processes, methodologies and metrics used for collecting and assessing information related to counterparties’ exposure to ESG risks and alignment towards the institution’s objectives and risk appetite. |
All institutions |
Outcomes of engagement practices, including an overview of counterparties’ adaptability and resilience to the transition towards a more sustainable economy. |
Large institutions only |
[2] Paragraph 110 of the Guidelines specifies those aspects (where this table refers to “all institutions”) that “at least” should be included by SNCIs and other non-large institutions in their plans. Accordingly, it is a minimum that SNCIs and other non-large institutions must include.
[3] As defined under Article 4(1)(146) Capital Requirements Regulation (575/2013/EU).
For further information on prudential transition plans, please contact Patrick Brandt, Garry O’Sullivan, or any member of ALG's Financial Regulation Advisory team.
Date published: 2 July 2025