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Armenian Economic Review (AER) is an open-access journal publishing high-quality, peer-reviewed theoretical and empirical research across the full spectrum of economics, finance, business and management.AER emphasizes inclusivity, research integrity, and methodological soundness, with submissions evaluated on scholarly merit rather than perceived impact.AER adopts an objective and constructive peer-review process and uses article-level metrics to assess research on its own merits. It welcomes contributions relevant to both academic and practitioner audiences

The paper explores the integration of climate transition risk into the financial supervision of banks, with a particular focus on regulatory evolution and strategic responses to an increasingly stringent sustainability policy environment. As governments advance commitments to net-zero transition pathways, banks face heightened exposure to risks arising from abrupt regulatory adjustments, the potential stranding of carbon-intensive assets, and rapidly shifting investor and client expectations. The study examines how supervisory authorities, especially within the European Union, are moving beyond disclosure-based approaches to incorporate climate transition risk into prudential supervisory frameworks. It reviews key regulatory instruments, including the European Central Bank’s Guide on Climate and Environmental Risks, the European Banking Authority’s finalized Guidelines on the Management of Environmental, Social, and Governance Risks, and emerging practices in climate-related stress testing. Special attention is devoted to the conceptual and methodological challenges associated with assessing transition risk, such as non-linear risk dynamics, scenario design, and the selection of appropriate time horizons. The paper also analyzes how banks are adapting their internal risk management and assessment frameworks in response to supervisory expectations. In addition, it provides insights into the heterogeneity of supervisory implementation across EU Member States and discusses the implications for banking strategy, particularly in the areas of capital planning, risk appetite, and portfolio alignment. The paper concludes with policy-oriented recommendations aimed at strengthening supervisory convergence and embedding climate transition risk within prudential supervision in a proportionate, forward-looking, and effective manner.

Institute of Economics after M. Kotanyan of the NAS RA

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Fundamental Scientific Library of NAS RA