From ambition to execution: transition plans for financial institutions

A practical EY approach for defining strategy, accelerating action and enabling net-zero transformation across financial institutions.

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In brief

• Ten years after the Paris Agreement, financial institutions are increasingly navigating the question of how their business models, portfolios and client relationships can support the transition to a net-zero economy.
• A transition plan is not only a disclosure output. It is a management framework that connects climate ambition with portfolio steering, client engagement, financial planning, governance and measurable progress.
• EY supports financial institutions through a pragmatic net-zero transition plan framework built around three phases: define strategy, accelerate action and enable transformation.

Ten years after the Paris Agreement, the global economy is entering a decisive phase in its transition to net zero. More than 190 countries have adopted net-zero pledges, and financial institutions are increasingly expected to explain how their financing, investment and insurance activities align with long-term climate objectives. The focus is shifting from commitments alone to evidence of how those commitments are reflected in strategy, risk management and portfolio-related decisions.

For a financial institution, not developing a transition plan does not simply mean foregoing an active role in reducing climate impact. It also means missing the opportunity to channel capital toward the real-economy transition, while remaining less equipped to identify and manage emerging transition and physical risks.

Swiss Re Institute’s analysis¹ shows that extreme events are already financially material, with USD 42 billion of insured natural catastrophe losses in the first half of 2026. Heatwaves, droughts and wildfire conditions can affect financial institutions through claims, collateral values, borrower disruption and rising credit, market and operational risk.

A transition plan is therefore far more than an informational disclosure framework. It is a strategic management tool that can guide interventions across governance, risk management, product design, client engagement and capital allocation. Rather than being a compliance exercise, it can become a roadmap for resilience and competitiveness in a decarbonizing economy.

In this context, transition plans should create a bridge between ambition and execution. They should connect climate objectives with sector and portfolio strategies, product development, client engagement, financial planning, governance and performance management, creating a practical line of sight from targets to implementation.

In a global economy shifting toward net zero, where does your financial institution stand?

This 34% is a positive sign. However, target validation should be seen as a starting point, not the end state: credibility also depends on whether targets are translated into governance, portfolio steering, client engagement and measurable progress.

Governance is the foundation for implementation. A transition plan needs board oversight, clear management responsibilities, defined roles across functions, adequate capabilities, a culture that supports delivery and incentives that are consistent with the plan’s objectives.

Once governance is in place, the plan should translate ambition into current and anticipated actions. These actions may affect assets, products, services, policies, client engagement, portfolio steering and financial planning. For financial institutions, stakeholder engagement is central because financed clients, investees, asset owners, policyholders, industry initiatives and public-sector stakeholders shape the feasibility of the transition.

This is where the gap between ambition and execution becomes visible. While target-setting is gaining traction, 43% of European financial institutions still do not disclose an intention to phase out investment in oil and gas, suggesting that sector-level transition choices remain one of the most challenging areas of market practice.

Finally, the plan must be measurable and comparable. It should include indicators and targets for own operations, down-stream emissions (especially financed and insured emissions), whether absolute or intensity-based and, where relevant, by asset type. Carbon credits should be considered only for residual emissions that cannot be abated, with transparent disclosure of their purpose and quantity. Progress should be reported regularly using recognized international standards to support comparability.

As market expectations evolve, this lack of visibility may become increasingly difficult to sustain, particularly as stakeholders look for evidence of governance, implementation and measurable progress.

EY’s climate transition plan framework

Understanding how to build transition plans requires a structured but flexible approach. EY’s approach helps financial institutions move through three connected phases: define strategy, accelerate action and enable transformation. The framework recognizes that there is no single starting point. Each institution has a different portfolio composition, sector and geographic exposure, business model, maturity level and regulatory context.

Define strategy: start with materiality

A practical starting point is the materiality or double materiality assessment. This exercise is useful not only for reporting requirements such as CSRD and ISSB, but also because it identifies whether and how climate change could create positive or negative impacts for the financial institution, and how the institution may itself create impacts through its financing, investment or insurance activities.

A well-structured materiality assessment helps identify which products, services, sectors and geographies are most affected and whether the relevant impacts, risks and opportunities are limited to own operations or extend across the value chain. If conducted holistically across environmental, social and governance matters, it can also reveal interdependencies between climate, biodiversity, water management and other sustainability topics.

Climate scenario analysis is also becoming a core expectation across many regulatory and supervisory landscapes and an important tool for managing climate-related financial risks. By testing transition and physical risk pathways, institutions can identify material exposures across sectors, geographies and time horizons. These exercises are typically scenario-contingent: they assess outcomes conditionally on a given scenario, without necessarily assigning probabilities to each scenario.

A transition plan can therefore do more than reduce negative climate impacts, mitigate risks and capture climate-related opportunities. It can also provide an integrated framework for addressing interconnected sustainability topics that might otherwise be managed through separate workstreams.

Accelerate action: move from targets to implementation

The need for action is reinforced by current market practice. Many institutions disclose progress against emission-reduction targets, but fewer disclose the key elements that make a plan operational, such as financial resources, implementation levers and granular portfolio objectives. This creates uncertainty about feasibility and increases greenwashing risk.

Financial institutions do not need to start from zero. Recent guidance, standards and market practices provide useful reference points. However, these documents serve different purposes and should be used accordingly: disclosure frameworks define what should be reported, validation frameworks assess whether targets and commitments are credible, and guidance frameworks support the design and implementation of the plan.

For financial institutions, disclosure and validation frameworks are relevant not only internally but also for assessing counterparties. Because the climate impact and risk profile of banks, insurers and asset managers is largely driven by the activities they finance, invest in or insure, counterparty-level information is essential. A transition strategy should therefore integrate the assessment of clients’ and investees’ transition plans into governance, risk management, engagement and capital allocation.

Enable transformation: make the plan governable and repeatable

A credible transition plan must be embedded into the operating model. This includes governance, risk management, data, technology, controls, capabilities, engagement models and reporting. The objective is to make the plan decision-useful, repeatable and capable of being updated as policies, markets, technologies and client strategies evolve.

The plan should also be anchored in roles and responsibilities. Board oversight, management accountability, cross-functional collaboration, training and incentives are essential to ensure that transition planning does not remain confined to the sustainability function but informs strategy, risk, business development and client dialogue.

The following pillars translate the three EY phases into concrete building blocks for financial institutions.

From framework to practice: selected transformation journeys

Recent client work shows how the framework can be translated into practical transformation journeys. 

What good looks like

A strong transition plan creates a clear line of sight from ambition to action. It explains what the financial institution is trying to achieve, why the priorities are material, how the plan changes business practices and how progress will be monitored over time.

For financial institutions, the most credible plans connect internal strategy with real-economy transition. This requires engagement with borrowers, investees, asset owners, policyholders and clients to understand their transition readiness, financing needs and constraints.

The result should be a plan that is strategic, measurable, financially grounded and embedded into the operating model. It should help the institution make better decisions today while retaining the flexibility to evolve with regulation, technology, markets and client strategies.

Financial institutions that treat transition plans as strategic management tools, rather than only as reporting requirements, will be better positioned to perform in the coming economy.

How EY can support

EY can support financial institutions across the full transition planning journey, from defining strategic ambition and portfolio scope to designing implementation levers, governance, KPIs and reporting processes.

Our approach combines climate expertise with financial services, risk management, regulatory, data and transformation capabilities. This helps institutions move from fragmented initiatives to an integrated transition plan that is practical, decision-useful and aligned with the realities of their portfolios and operating models.