Until 23 February 2023, the Transition Plan Taskforce (TPT) which is working to develop a ‘gold standard’ for private sector transition plans, is consulting on the TPT Disclosure Framework and Implementation Guidance. A TPT Online Sandbox is also available, where entities can assess existing transition plans against the TPT’s outputs. The TPT is supported by the UK Treasury, such that the UK Government and the Financial Conduct Authority are actively involved and will draw on the TPT’s outputs to strengthen disclosure requirements across the UK economy.
The framework and guidance follows the TPT’s May 2022 Call for Evidence on the approach to be adopted for climate transition plans. The aim is to ensure consistency between transition plans so as to assess credibility, whilst also ensuring that plans are sufficiently ambitious to achieve the required aims. Transition plans are considered key to ensuring a successful and timely transition, ensuring that an appropriate analysis has been carried out as to emissions reductions and how it will actively respond to the physical and transitional risks of climate change.
Ambition, action and accountability are the TPT’s three guiding principles. In the drafts provided, entities are to be ambitious in setting their objectives, and consider what actions they can take which will make the most significant contribution towards an economy-wide transition, targeting Scope 1, 2 and 3 emissions across the whole entity. All interdependencies (e.g. natural environment, workers, suppliers, communities, consumers) should be considered, along with relevant national commitments and international agreements on climate change. Decarbonization through direct abatement should be prioritized over the purchasing of carbon credits. Short- and medium-term concrete steps should be set out, using defined assumptions, the sensitivities to which are to be assessed, and any risks mitigated where possible. This is all to be backed up by robust governance mechanisms, including Board and executive oversight, and the relevant and appropriate incentivization, reporting and accountability structures. Quantified and timebound metrics and targets are to be reported against on an annual basis, with full transparency over the extent of external verification or assurance.
The TPT is recommending that entities consider a strategic and rounded approach to the design, development and disclosure of transition plans, setting out three inter-related channels which can be used, namely decarbonization, response to climate-related risks and opportunities, and contribution to the economy-wide transition (ensuring consistency with constitutional documents, duties of directors and senior managers).
The proposals set out in the Framework can be summarized as follows:
Location & Timing of Reporting
As well as including material information relating to the transition plan in the general purpose financial reporting, entities are to publish a single standalone document setting out their transition plan, to sit alongside the Annual Financial Report
Entities are to update the plan periodically, either when there are significant changes to the plan, or at least, every three years
In the interim years, progress against the plan and all other content in the plan that is deemed material to investors should be reported on an annual basis as part of TCFD- or ISSB- aligned disclosures in general purpose financial reporting
Assurance & Verification
If assurance or verification is obtained, the TPT would expect to see the level of assurance or verification obtained; the scope of the engagement; the professional standard(s) against which the engagement was performed; who the assurance provider is; and the outcome of the engagement
Existing frameworks & guidance
The TPT is alive to the existing frameworks and guidance in place (UK reporting rules aligned with TCFD, FCA expectations, ISSB guidance), and sees this Framework as being consistent with such ‘building blocks’, whilst providing further granularity and specificity as specific to the UK market.
Entities should apply the same corporate reporting norms to their transition plan disclosures as they would to their general purpose financial reporting
The TPT recommendations are structured around five elements, each of which has a number of ‘sub-elements’ to be disclosed against:
Foundation (objectives and priorities; business model implications)
Implementation Strategy (business planning and operations; products and services; policies and conditions; financial planning; sensitivity analysis)
Engagement Strategy (engagement with value chain; engagement with industry; engagement with government, public sector and civil society)
Metrics & Targets (governance, business and operational metrics and targets; financial metrics and targets; GHG emissions metrics and targets; carbon credits)
Governance (board oversight and reporting; roles, responsibility and accountability; culture; incentives and remuneration; skills, competencies and training)
Accompanying the Disclosure Framework is the implementation guidance, which sets out in more detail the steps organisations could take to develop a transition plan. Both the Framework and accompanying guidance are open for consultation until 28 February 2023, following which a finalised framework is expected.
To date, net zero transition plans have been largely voluntary, leading to a lack of standardisation, difficulty in assessing them, and concerns as to the extent to which net zero targets are being measured in the short- to medium-term. Now, both in the UK, at European level (CSRD), and in other countries across the globe, there is a move towards mandatory disclosure, often with a focus not solely on delivering emissions reductions, but also encompassing other non-financial disclosures (biodiversity, human rights). Entities are being required to demonstrate how they intend to adapt their businesses to achieve emission reductions, whilst also mitigating against the physical and transitional risks of climate change, assessments to be made in ‘real time’. It will be important for organisations to review and engage in the consultation, with a focus not only on the workability of the proposals, but also allowing a consideration of the extent to which these proposals are consistent with other disclosures which the entity may be required to make in different jurisdictions, so as to ensure consistency, where feasible.
CMS | Law-Now | UK Net Zero Delivery Review: Call for Evidence