Prudential Transition Plans in 2026: Connecting CSRD, CSDDD and ISSB to Climate Risk

EXECUTIVE SUMMARY

Prudential transition plans now sit at the core of how European banks turn climate policy into balance sheet decisions. With the EBA Guidelines on the management of ESG risks in force since 11 January 2026 and environmental scenario analysis due from 1 January 2027, supervisors expect banks to show how transition risk flows through ICAAP, ILAAP and portfolio steering, not just ESG reports.

At the same time, the EU is reshaping its sustainability rulebook through the Omnibus package. CSRD and the new simplified ESRS Set 1 will apply mainly to large groups above 1,000 employees and 450 million euro in turnover, with a simplified standard that cuts mandatory datapoints by about 61 percent and removes all voluntary datapoints from around 2027. For banks, this means fewer raw data points from many clients and a bigger responsibility to build robust ESG data strategies, blending reported ESRS data with vendor inputs, proxies and disciplined model governance before it ever enters prudential transition plans.

The Corporate Sustainability Due Diligence Directive has been cut back even more sharply. Under the political agreement, CSDDD will apply only to very large companies above 5,000 employees and 1.5 billion euro turnover, with implementation pushed toward 2029 and the mandatory climate transition plan requirement removed entirely. That may reduce compliance pressure for many firms, but it does not reduce prudential expectations. Banks still have to treat environmental and human rights due diligence failures as real drivers of credit, operational and reputational risk, whether or not a counterparty sits inside the narrowed CSDDD scope.

Outside the EU, IFRS S1 and S2 are quickly becoming the global baseline for climate related financial disclosures, effective from 1 January 2024 and already moving into regulation in more than thirty jurisdictions that together represent around sixty percent of global GDP. For internationally active banks, prudential transition plans now need to weave ESRS based information for EU clients together with ISSB based data elsewhere, using a consistent set of climate scenarios, risk taxonomies and narratives across investor reporting, regulatory submissions and internal risk management.

In short, CSRD, simplified ESRS, CSDDD and ISSB define what data and governance companies are required to put in place. Prudential transition plans define how banks turn that information into a coherent view of climate transition risk and how they use it in credit decisions, climate stress testing and capital planning.

At Futureproof Solutions, we use the comparison map below to help boards, CROs and risk teams line up these frameworks so that prudential transition plans work for supervisors, markets and, ultimately, for the real economy they finance.