Until 13 July 2022 comments are sought on the approach to be adopted for climate transition plans for UK companies and financial institutions. Launched by the Transition Plan Taskforce (‘TPT’), mandated by the UK Government to develop a ‘gold standard’ for transition plans, feedback is requested on 22 questions relating to key principles and elements of a proposed framework for setting credible climate transition plans. The framework will be developed during 2022, a draft published for consultation towards the end of this year, which is then likely to be finalised in early 2023.
The proposed framework is launched against the backdrop of an increasing number of companies publishing their plans to achieve net zero, and listed companies and large regulated asset owners and asset managers now specifically required to disclose such plans following the adoption by the FCA of TCFD recommendations on disclosure rules with more large businesses now mandated on climate disclosures. At present, there is no consistency between the plans, and often an absence of detail needed to formulate the basis of the transition, so as to ensure the plans are consistent and sufficiently ambitious to achieve the required aims. Crucially stakeholders are often unable to assess their credibility.
Whilst specific elements of disclosures which could be set out in the transition plans are detailed in the call for evidence, as a starting point, in the umbrella definition (on which feedback is sought) a transition plan should set out:
- high-level targets that the organisation is using to mitigate climate risk, including greenhouse gas reduction targets (e.g. net zero commitment);
- interim milestones; and
- actionable steps the organisation plans to take to hit those targets.
As to the principles behind the disclosures themselves, these are three-fold, namely:
- A need to align with an economy-wide net zero transition, such that particular temperature targets are met within a specific timeframe (ideally 1.5 °C low or no-overshoot scenario by 2050), with the plan to cover the whole organisation (although feedback is sought on the challenges of such a principle for internationally active firms, given that different jurisdictions will have different economy-wide transition paths).
- A focus on concrete actions which emphasise the near-term (specifically the next 3-5 years with interim milestones also included) and are backed up by clear governance mechanisms.
- An ability to enable periodic reporting and verification in a transparent manner.
Different TPT workstreams are set out in the call for evidence, and input sought on the number of different approaches which the proposed framework could take, not least on how prescriptive the templates ought to be. As to the templates themselves, reference is made to:
- A sector-neutral framework for private sector transition plans, providing standardised and actionable transition plans, which will set out:
- the definition of a transition plan;
- principles that should guide preparers of transition plans and provide a reference point for users seeking to understand the credibility of disclosed plans;
- key elements that any private sector transition plan should cover, regardless of sector; and
- accompanying guidance on the role of governance and assurance, third-party verification and the implications of organizational transition plans for reporting.
- Sectoral transition plans to provide guidance on targets and metrics for financial sub-sectors and key real economy sectors.Input is sought on how the TPT should select which sectors to develop tailored transition templates for, and how these should be prioritised.
Reference is made to the progress underway by other international standard setting organisations, private sector alliances and third parties who are working on developing transition plan guidance (TCFD, ISSB, GFANZ), and the financial regulators supervising strategic responses to the financial risks arising from climate change. The aim is to avoid duplication and divergence of standards, and coordinate with such organisations to ensure consistency where possible, whilst also noting the importance of developing an approach well-suited to the UK context.
Across the world the reflection of risks and opportunities associated with the climate crisis by way of increasing mandated disclosure is growing with simultaneous consultations taking place in the EU and the USA. Transparency as to the route by which organisations are to transition to a lower carbon economy is embedded in being able to understand the assessment of risk and opportunity. Ensuring that the proposed framework is workable and meaningful, particularly for internationally active companies who may be subject to an array of requirements, is crucial. For preparers and investors a transferable approach regardless of jurisdiction will be important in order to properly compare propositions. Stakeholders should contribute to the call for evidence to share experience and shape the process. Companies (and directors) will ultimately be held to account on the commitments they make in the transition plans, and the short-term nature of targets to be set, coupled with staged assessments during that timeframe, will require a continual monitoring of all disclosures made. Compliance with the proposed framework, once finalised, will, however, allow and provide an opportunity for companies and their directors to demonstrate that they are adequately considering the transition to net zero.