During last year’s COP26, the UK Government announced that it would mandate the disclosure of listed companies’ and financial institutions’ net zero transition plan, and that it would form a taskforce to assist private sector actors in doing so.
Coinciding with the start of COP27, the UK’s Transition Plan Taskforce (“TPT”) – a taskforce with a mandate from His Majesty’s Treasury to help enable private sector actors in the UK create robust climate transition plans to fulfil their net zero commitments – on 8 November 2022, published, for consultation, its new Disclosure Framework for companies to disclose their climate transition plans.
Importantly, the Disclosure Framework draws on existing and emerging disclosure regimes, such as the Taskforce on Climate-Related Financial Disclosure (“TCFD”) Recommendations and the International Sustainability Standards Board’s (“ISSB”) Sustainability Disclosure Standards (for more information on the TCFD and ISSB regimes, read our previous blog posts here, here, here and here).
The TPT’s publication of its Disclosure Framework recommendations is supplemented by the TPT’s Implementation Guidance. The Implementation Guidance sets out practical steps to help private sector actors develop climate transition plans, as well as information on when, where and how to disclose such plans.
The TPT’s recommendations
The Disclosure Framework’s recommendations for climate transition plans are underpinned by three guiding principles:
- Ambition – A transition plan should outline ambitious objectives and priorities for contributing to, and preparing for, a rapid and orderly economy-wide net zero transition;
- Action – A transition plan should translate ambitious strategic objectives into concrete steps to be taken in the short- and medium-term; and
- Accountability – Delivery of a transition plan should be supported by robust governance mechanisms, including board and executive oversight, with relevant and appropriate incentivisation, reporting and accountability structures.
The TPT recommends that a good practice transition plan should cover:
- an entity’s high-level ambitions to mitigate, manage and respond to the changing climate and to leverage opportunities of the transition to a low greenhouse gas (“GHG”) emission and climate-resilient economy. This includes GHG reduction targets, which the Disclosure Framework recommends include Scope 3 emissions (or an explanation for their omission), and information on the use of carbon offsets;
- short, medium and long-term actions that the entity plans to take to achieve its strategic ambition, alongside details on how those steps will be financed;
- governance and accountability mechanisms that support the delivery of the transition plan and robust periodic reporting; and
- measures to address material risks and to leverage opportunities.
The TPT also recommends that entities publish standalone transition plans at least every three years, and sooner when there are significant changes to the plan.
Progress against the plan and material updates should be reported annually as part of TCFD- or ISSB-aligned disclosures in general purpose financial reporting (e.g. the Annual Financial Report). If an entity produces a long-form TCFD or sustainability report, the transition plan must be clearly separable (e.g. as an appendix or separate document).
Whilst in the UK there are currently no external assurance requirements on sustainability information, the Disclosure Framework recommends that if an entity obtains assurance or verification over sustainability information, transition plan disclosure or wider sustainability reporting, certain key information relating to the nature of the engagement, level of assurance and identity of the assurance provider should be disclosed.
Next steps
The TPT has also launched an online “Sandbox”, which allows private sector actors that are preparing their 2023 climate transition plans to provide feedback on their experiences in applying some or all of the TPT’s Disclosure Framework and Implementation Guidance.
The Disclosure Framework and Implementation Guidance are open for public consultation until 28 February 2023. The TPT will subsequently use the consultation and “Sandbox” feedback to finalise its Disclosure Framework and Implementation Guidance, both of which will inform future regulation in the UK.