Greater numbers of businesses and investors are setting ambitious targets to reach net-zero, and as a result, there needs to be a way businesses can standardise how they develop and disclose information related to their sustainability journeys. This is why at COP26 the former UK Chancellor Rishi Sunak announced the establishment of a UK Transition Plan Taskforce (TPT), which was tasked to develop a new “gold standard” for corporate transition plans. The CBI has been invited to join the TPT and has contributed to its work throughout the year.
At COP27, the TPT has published its draft Disclosure Framework and accompanying Implementation Guidance. It has also launched a Sandbox for companies and financial institutions to test implementation of the transition plans framework in practice. Ultimately, these publications will inform future regulation in the UK and will apply to all listed companies and financial institutions.
What are transition plans?
As outlined in government’s publication last year, a transition plan sets out how an organisation plans to adapt to the world’s transition towards a low-carbon economy. The TPT outlines that a good transition plan should include:
- A company’s high-level ambitions to mitigate, manage and respond to the changing climate and leverage the opportunities of transition (including setting targets such as net-zero)
- Short-, medium- and long-term actions a company plans to take to achieve its strategic ambition
- Governance and accountability mechanisms that support delivery of the plan and robust periodic reporting
- Measures to address risks to, and leverage opportunities for, the natural environment and stakeholders such as the workforce, supply chains, communities or customers which arise as part of these actions.
Although many businesses have been already developing transition plans according to voluntary frameworks, the UK is the first country committed to developing an agreed mandatory standard for corporate transition plans. The initiative is part of the government’s ambition to make the UK the world’s first net zero aligned financial centre and transition plans are supposed to provide investors and firms with necessary and comparable information to navigate the transition process.
Who should develop transition plans?
According to the government’s plan, the only institutions legally obliged to develop transition plans in the UK will be asset managers, regulated asset owners and listed companies. The exact timeline for this is still unknown but the TPT framework will be finalised by the end of 2023. Businesses will be guided, first, by a sector-neutral framework published for consultation today and, second, by sector-specific guidance, which will be developed by TPT experts in 2023.
The framework will be of course available to use for all businesses willing to develop their own transition plan on a voluntary basis to help guide their sustainability strategy.
How often do transition plans need to be reviewed?
According to the TPT’s recommendation to government, disclosure against the TPT’s Framework should integrate with, and build from, broader climate related disclosures in the reporting entity’s general purpose financial reports (such as a UK listed company’s annual report).
Transition plans will need to be updated periodically, and the TPT’s recommendation is to do this either when there are significant changes to the plan or, at the latest, every three years. In the interim years when the plan is not updated, progress against the plan should be reported on an annual basis as part of other existing voluntary or mandatory sustainability disclosures, such as TCFD and ISSB, in general purpose financial reporting (i.e., the Annual Financial Report).
Next steps
The TPT is currently consulting on their proposal until 28 February and the CBI will be developing a response. If you’d like to get involved in our response, reach out to Julia Jasinska and join relevant Working Groups to be looped in our work.
If your organisation is developing or planning to develop a transition plan, you can also participate in TPT’s Online Sandbox. The initiative will allow organisations that are preparing transition plans to provide feedback on their experiences in applying some or all of the TPT’s Disclosure Framework and Implementation Guidance. You can sign up for it here.
The TPT will use the consultation and Sandbox feedback to finalise the Disclosure Framework and Implementation Guidance. After that, the Financial Conduct Authority (FCA) plans to draw on the TPT’s final outputs to strengthen their transition plan disclosure expectations of listed companies, asset managers and regulated asset owners.
