Meeting net-zero targets poses a major challenge for companies. Some companies are able to adapt to the new low-carbon world, while others may fail to do so and thus risk turning into stranded assets. This chapter argues that central banks should treat transition risk as endogenous. Central banks can set macroprudential limits on carbon exposures to guide a smooth transition to net zero by 2050. Hard limits are needed as banks have been reluctant so far to hive off profitable fossil-fuel-related loans. Strong and effective macroprudential policies help to minimize climate-induced financial instabilities and reduce the need for lender of last resort (LOLR) assistance to carbon-heavy banks. Such LOLR assistance may result in substantial central bank losses, as carbon-heavy banks face permanent losses on their carbon-intensive assets.