The Hong Kong Monetary Authority issues Supervisory Policy Manual (SPM) module on transition planning

On 22 September 2026, the Hong Kong Monetary Authority (HKMA) issued a circular attaching, as annex 1, a new Supervisory Policy Manual (SPM) module GS-2 on Transition Planning (the GS-2). GS-2 elaborates on and supplements the existing GS-1 Climate Risk Management module. The primary objective of GS-2 is for authorised institutions (AIs) to establish a robust and proportionate transition planning process to manage climate-related risks and opportunities arising from the transition to net zero, covering both transition and physical climate risks. 

Key elements of GS-2 include: 

Documentation:

AIs should properly document the targets, policies, procedures and controls that are put in place to monitor and manage the risks and opportunities associated with the net-zero transition over the short, medium and long term. AIs should also document changes to their business models in response to the risk implications associated with the net-zero transition.  GS-2 makes clear that the transition planning documentation is focused on risk management and is not the same as the strategic or business transition plans. 

Application and implementation: 

International banking groups operating in Hong Kong may rely on the transition planning being conducted at the group or regional level.  Where group or regional transition planning arrangements do not exist or do not fully apply to an AI’s Hong Kong operations, the AI should assess whether the resulting gaps give rise to material risks at the local level, and, if so, the AI should put in place proportionate local controls or other measures to address them. 

AIs should have transition planning documentation in place by 1 July 2030, prior to which, AIs are expected to take active steps to implement the requirements.  After 24 months of the issuance of GS-2, AIs should be prepared to illustrate their progress in implementing it. The HKMA states it will adopt a proportionate and pragmatic approach to reviewing AIs’ implementation of GS-2, taking into consideration the size, nature and complexity of each AI’s operations, the materiality of climate-related risks the AI is exposed to, and the practical challenges that AIs face in transition planning. 

Governance: 

AIs are expected to incorporate transition planning considerations into governance arrangements, with appropriate oversight, skills and culture to support implementation. The board has primary responsibility for the oversight of an AI’s transition planning, although this can be delegated to a board-level committee. The senior management is responsible for ensuring that the AI’s transition planning is properly implemented and integrated into the AI’s risk management framework.

Strategy: 

AIs should devise short-, medium- and long-term goals and targets to guide transition planning.  Appropriate metrics and indicators should be used to help translate the AI’s long-term goals and targets into concrete actions and milestones, and to track progress. AIs should review their transition planning processes and transition planning documentation at least annually.

Risk management and metrics: 

AIs should incorporate risk considerations associated with the net-zero transition into their risk management framework, monitor their exposures to such risks and ensure that their exposures are consistent with their risk appetite.  To guide their risk management, AIs should set targets that allow them to monitor and manage the risks associated with (i) the transition of their own operations; and (ii) the real economy’s adjustment towards the climate or transition objectives set out in the policies or laws of the jurisdictions where they operate or where their exposures are located (i.e. where their loans and advances are used).

Stakeholder engagement: 

GS-2 sets out the importance of engaging clients and other stakeholders, recognising that AIs’ transition planning is closely linked to the transition pathways of their customers. AIs should put in place a structured process to engage clients on a risk-proportionate basis, with those clients which are considered to be exposed to high climate-related risks, appropriately engaged and monitored (including collecting information on high-risk clients’ transition goals, strategies and plans, as well as implementing a mechanism to monitor, review and escalate cases where there is a significant inconsistency between a high-risk client’s transition goal, strategy or plan and the AI’s own targets, strategy or risk management framework). AIs should prioritise client engagement rather than divesting from carbon intensive assets. 

Scenario analysis: 

AIs should use climate scenario analysis to identify and assess risks and opportunities and to test the resilience of their business strategy over different time horizons. AIs should make use of climate scenario analysis to understand plausible sectoral decarbonisation pathways and portfolio alignment and to assess the appropriateness of their strategies in achieving their targets.  Quantitative metrics and targets should be evaluated and complemented by qualitative analysis. 

Communication: 

The transition planning documentation is not required to be disclosed under GS-2, however, HKMA notes that there have been increasing expectations and requirements for AIs to make sustainability-related disclosures in accordance with international standards (e.g. TCFD, IFRS’ ISSB and the Basel Committee on Banking Supervision’s disclosure framework for climate-related financial risks). 

**

For further information on transition plan requirements under various mandatory, voluntary and proposed regimes, see our ESG Quick Guide: Transition plans.