In 2021, at COP 26, the UK Government announced its intention that the UK would become the world’s first net zero aligned financial centre. It also launched the Transition Plan Task Force (“TPT”) with a view to producing a Gold Standard Disclosure Framework for transition plans.
Last week, the TPT published its Disclosure Framework and Implementation Guidance.
The Disclosure Framework and guidance set out a baseline, consistent with international disclosure standards for organisations to report on their pathway to achieving net zero.
The UK has committed to moving towards making the disclosure of Transition Plans mandatory.
What is a Transition Plan?
A Transition Plan sets out:
- high-level targets organisations are using to mitigate climate risk;
- interim milestones; and
- actionable steps the organisation intends to take to hit those targets and milestones.
Key to the success of the Disclosure Framework is its consistency with international standards.
ISSB
The ISSB has adopted IFRS-S1 and IFRS-S2 which serve as the global baseline of sustainability disclosures for capital markets.
IFRS-S2 requires an entity to disclose “[any] climate-related transition plan [it] has”.
The TPT builds on the work of the ISSB and supports compliance with IFRS S2.
Disclosure Framework
Pursuant to that, the TPT has developed a sector-neutral Disclosure Framework alongside sector-neutral Guidance and Sector Guidance covering 40 sectors (to be published in November 2023). The latter includes “real economy sub-sectors” such as utilities and power, food and beverage and oil and gas and “finance sub-sectors” (e.g. banking, asset management etc).
The Disclosure Framework applies three guiding principles:
- Ambition – i.e. what are the organisation’s main strategic aims and business model;
- Action – i.e. what policies will it apply to achieve these aims and what resources will be made available; and how will the organisation engage with stakeholders; and
- Accountability – targets (including interim targets) and governance issues (e.g. Board oversight and upskilling).
What are the next steps?
Some organisations have already produced initial Transition Plans and these provide a useful model for other organisations embarking on the next steps in their journey to net zero. In November 2023, the TPT will publish sector-specific guidance on transition planning and in Q4 of 2024 the UK Government will consult on transition plan requirements.