Principles for Climate Transition Planning

CBUAE Classification: Public UAE Sustainable Finance Working Group Principles for Climate Transition Planning February 2026

CBUAE Classification: Public CONTENTS Page Subject A. INTRODUCTION 1 B. APPLICATION 2 C. GENERAL CONSIDERATIONS 3 D. THE PRINCIPLES 4 Principle 1 Objectives of climate transition planning 4 Principle 2 Governance 5 Principle 3 Incorporation of climate transition planning into overall business strategy and risk management processes 6 Principle 4 Metrics and targets 7 Principle 5 Data and customer engagement 8 Principle 6 Reporting and transparency 9 Principle 7 Implementation actions and strategy 11 Principle 8 Review and updates 13 REFERENCES 14

1 CBUAE Classification: Public A. INTRODUCTION

1. The UAE Sustainable Finance Working Group (SFWG) was established in 2019 to support the UAE’s economic transition to address climate change and encourage the adoption of best practices around sustainability at the national level. This follows on from the ratification of the Paris Agreement by the UAE in 2016 and domestic acts and initiatives, including the UAE Green Agenda 2015-2030, the National Climate Change Plan of the UAE 2017-2050 and the UAE Net Zero 2050 Strategic Initiative, and Federal Decree-Law No. (11) of 2024 On the Reduction of Climate Change Effects, among others.

2. In 2020, the SFWG issued the Guiding Principles on Sustainable Finance in the UAE, through which the SFWG committed to developing standards for the financial sector to integrate sustainability factors into corporate governance, strategy and risk management.

3. To give effect to this commitment, the SFWG issued the Principles for the Effective Management of Climate-related Financial Risks (“Risk Management Principles”) in November 2023. The Risk Management Principles address the oversight and allocation of responsibilities for climate-related financial risks, their integration into the strategy-setting process, risk management frameworks, capital and liquidity planning processes, and scenario analysis exercises by financial firms.

4. Subsequently, the SFWG issued the Principles for Sustainability-related Disclosures for Reporting Entities (“Disclosure Principles”) in June 2024 to help prepare relevant financial firms in the UAE to achieve high-quality and relevant sustainability disclosures.

5. In progressing these efforts, and to complement the SFWG’s previous publications, the SFWG is now issuing the Principles for Climate Transition Planning (the “Principles”). The Principles are designed to help financial firms develop an adequate approach to climate transition planning in support of the UAE climate transition objectives, including those identified in the UAE’s Third Nationally Determined Contributions.

B. APPLICATION 6. The Principles are primarily relevant for financial sector entities in the UAE that are new to climate transition planning as well as those that already produce climate transition plans for risk management and/or strategic purposes. For the purpose of the Principles, financial sector entities are referred to collectively as ‘financial firms’. The Principles are drafted to cater for a wide spectrum of financial firms without drawing distinctions between the various business models or categories of financial services conducted.

7. Where relevant, the Principles should be read in conjunction with the SFWG’s Risk Management Principles, and the Disclosure Principles.

8. Financial firms are encouraged to consider the Principles in a manner proportionate to the materiality of the risks and opportunities presented by the transition to address climate change. UAE branches of foreign financial firms may consider the Principles in the context of their consolidated approach to climate transition. Other considerations around implementing the Principles may include, but are not limited to, specific business models, organisational structure, risk profiles, and regulatory environment, among others.

9. It remains in the discretion of each of the financial services regulators to determine the financial firms in scope of the Principles, how to apply each of them and the timeframe to do so in their jurisdictions.

10. The SFWG recognises that standards in this area are still evolving at an international level and across jurisdictions worldwide. This fact has been reflected in the Principles allowing for flexibility in response to future developments.

C. GENERAL CONSIDERATIONS 11. Climate transition planning may be broadly viewed as a forward-looking exercise that assists financial firms in identifying climate-related actions and adjustments to their business strategy, risk management processes, governance structures, data management, stakeholder engagement and disclosure and reporting practices, to meet their climate targets.

12. Financial firms may use inputs from their climate-related financial risk management process and other sources to develop strategies, policies and actions to help manage transition-related risks and support the viability of their business over the medium- and long-term while also meeting any climate-related targets they may have. Considerations and inputs into transition planning may encompass, among other things, climate scenarios and pathways, the firm’s business model, physical and transition risks to which the financial firm is exposed, and the climate-related opportunities available to the firm.

13. Reference to the board and senior management throughout the Principles is to be understood in accordance with their respective roles and responsibilities, and is meant to include the members of the board of directors (or equivalent) and senior management.

D. THE PRINCIPLES Principle 1 – Objectives of climate transition planning

1. Financial firms should set clear objectives for their climate transition planning. The objectives should reflect the purpose of transition planning as undertaken by the financial firm, and be informed by international best practices, regulatory mandates and sectoral strategies applicable to the financial firm.

1.1 Financial firms should develop objectives that reflect how the firm intends to utilize transition planning, and whether it will be used for strategic and/or risk management purposes.

1.2 Financial firms should ensure that transition planning objectives are aligned with their climate policy objectives.

Principle 2 – Governance 2. Climate transition planning, its outputs and implementation should be overseen by the board and senior management, and incorporated into the financial firm’s governance framework.

2.1 The financial firm’s board may formally assign roles and responsibilities for climate transition planning, implementation, monitoring and review to either board committees or appropriate senior management. Roles and responsibilities should be clearly defined across the firm functions to ensure clarity and accountability, with appropriate individuals and teams assigned to carry out related activities.

2.2 Appropriate governance structure, escalation processes and reporting procedures across the financial firm should be put in place in relation to climate transition planning and implementation.

2.3 Financial firms should ensure that the board, senior management and relevant personnel actively keep up to date to develop and maintain sufficient knowledge and skills, including by providing training, to oversee the firm’s climate transition planning.

2.4 Financial firms may consider aligning remuneration and incentives with the firm’s climate transition objectives. Firms may also consider implementing a change management program and an internal communication strategy to assist in embedding transition planning objectives into the firm’s culture and practices.

Principle 3 – Incorporation of climate transition planning into overall business strategy and risk management processes 3. Climate-related transition planning should be a part of, and aligned with, the financial firm’s activities related to addressing climate-related risks and opportunities and its business strategy.

3.1 Financial firms should embed climate transition planning in developing and reviewing their business strategies and models in the short-, medium- and long-terms, and in the strategic plans approved at board level.

3.2 Financial firms should consider transition-related impacts on their business model, including on their customer base and other stakeholders in transition planning, their business operations, their policies and procedures, and their financial planning.

3.3 Climate transition planning considerations should be embedded into the risk management framework, processes and tools of the financial firm, where this aligns with the firm’s climate transition planning objectives. Areas where such considerations may be embedded include the firm’s risk appetite, scenario analysis, and considerations of climate transition activities and targets as part of the financial firm’s financing, investment, underwriting decisions and due diligence processes.

Principle 4 – Metrics and targets 4. Financial firms should identify a set of metrics and targets that reflect the firm’s climate transition objectives and strategy, and measure progress towards their achievement over time.

4.1 Financial firms should identify metrics and establish targets which may be quantitative and qualitative, and selected based on robust methodologies, clear milestones, and for various time horizons. Limitations of any metrics and targets should be understood, explained and disclosed, as necessary.

4.2 Financial firms should ensure that metrics and targets used for climate transition planning are consistent with science-based assumptions relevant to the financial firm, and align with the firm’s commitments and obligations (if any). They should support the firm’s climate transition strategy, and enable the firm to drive and monitor its climate transition progress and performance.

4.3 Financial firms may use data proxies as appropriate to bridge data gaps, based on documented and robust methodologies and assumptions. Use of such proxies should be appropriately disclosed or identified for stakeholders.

4.4 Metrics and targets should be monitored and reviewed regularly to address any limitations, data gaps and/or material developments to data methodologies, regulatory changes or business models.

Principle 5 – Data and customer engagement 5. Financial firms should consider the necessity of developing and implementing appropriate customer engagement mechanisms and data strategies to understand their customers’ transition strategies, implement a transition planning process that takes into account customers’ transition approaches (if any), and maintain relevant data to inform decision-making.

5.1 Financial firms seeking to better understand their customers’ transition strategies and risks should consider collecting relevant data and information from their customers on a regular basis.

5.2 Financial firms aiming to collect customers’ data for climate transition purposes should establish or adopt clear criteria to identify or prioritise customers for engagement, and should tailor engagement goals, timelines and methods to the relationship and/or the context of customers’ business.

5.3 Financial firms should identify appropriate courses of action based on the engagement's outcomes. Feedback obtained from customer engagement should be considered in the firm’s review and update of its own transition planning objectives and activities, including potential adjustments to product offerings and an appropriate escalation framework, where necessary.

5.4 Financial firms that undertake investment activity for themselves or their clients should consider supporting transition planning at the companies that they invest in. Elements of this engagement strategy can include:

i. Process for identifying and prioritising investee companies for engagement, including size of investment as well as the transition-related risks and opportunities that they may be exposed to.

ii. Encouraging investee companies to develop their own frameworks for identifying, measuring, monitoring, and reporting climate and transition-related risks and opportunities.