What’s planned for climate transition plans in the UK private sector?

What are Climate Transition Plans?

A climate transition plan (TP) is a document in which an organisation sets out its climate and net-zero commitments and its strategy for delivering those commitments, including its long-term timeline for implementation and how it intends to respond to risks and opportunities along the way.

Who are the UK Transition Plan Taskforce?

The UK Transition Plan Taskforce (TPT) was established by HM Treasury in April 2022, as part of the government's strategy to build the world's first net zero financial centre in the UK. The TPT is tasked with creating the standards and guidance for publication of TPs in the UK private sector and its stated mission is ambition, action and accountability.

The TPT is comprised of academic, industry and regulatory bodies. It is governed by the UK Centre for Greening Finance and Investment (CGFI), a government funded research body designed to accelerate the use of environmental data by financial institutions globally, as well as E3G, an independent think tank focussing on climate policy, and the Financial Conduct Authority (FCA).

Are companies required to prepare a Transition Plan?

As it stands, TPs are not yet mandatory under statute. However, voluntary TPs are recommended by the FCA and increasingly used by premium and standard listed companies to demonstrate compliance with climate-related disclosure requirements.

"Comply or Explain" on climate-related financial disclosures

Under the Listing Rules (LR 9.8.6R(8) and LR 14.3.27R respectively), premium and standard listed companies are required to disclose in their annual report whether they have made the disclosures recommended in the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD) and if they have not made these disclosures, they are required to explain why. The LR guidance recommends TPs as a mechanism for presenting this information. There is government support to extend the "comply or explain" on TCFD recommendations across the wider economy.

"Comply or explain" represents the government's cautious approach to climate reporting requirements. In relation to TPs, qualifying companies are not required to prepare and publish a TP but simply to disclose whether they have one.  

As such, whether a company implements TPs turns on market forces and stakeholder pressure. It is possible that the framework and sector guidance rolled out by the TPT will encourage increased adoption of and a movement towards mandatory TPs.

What guidance is available in relation to Transition Plans?

Final Disclosure Framework

The TPT published its final disclosure framework and implementation guidance on 9 October 2023 (the Framework). The Framework is broadly aligned with international standards (IFRS S2) published in June 2023 by the International Sustainability Standard Board (ISSB).

The Framework covers 19 topics across 5 categories being foundation; implementation strategy; engagement strategy; metrics and targets; and governance. The TPT recommends a "strategic and rounded" approach to TP audits, considering the long-term timeline and balancing scores across the 5 categories.

The Framework aligns with that prepared by the Glasgow Financial Alliance for Net Zero (GFANZ), to ensure that common standards are developed across the UK.  

Sector Specific Guidance

The TPT is expected to produce sector specific guidance on TPs in February 2024. In this regard, the TPT launched a "deep dive" consultation on 13 November 2023, seeking views on TP guidance for the following seven sectors: asset managers, asset owners, banks, electric utilities, power generators, food and beverage, metals and mining, and oil and gas. The consultation runs until 29 December 2023.

An example: Electric Utilities & Power Generators Sector

The TPT has prepared specific guidance for the Electric, Utilities & Power Generation sector (EUPG) noting the sector’s contribution of more than a third of the total global energy-related CO2 emissions in 2021.

The EUPG sector guidance suggests that TPs should be structured around three channels:

  • decarbonising the entity;
  • responding to the entity’s climate-related risks and opportunities, and
  • contributing to an economy-wide transition.

Specifically, the guidance notes that TPs should address actions to reduce emissions and fossil fuel power production and increase net-zero generation production. In doing so, TPs should consider the impacts of these actions on stakeholders (for example, job loss and job creation, availability, and affordability to consumers) and include mitigation plans in respect of adverse effects.

What's next for TPs and Green Finance?

On 29 November 2023, the House of Commons' Environmental Audit Committee (EAC) published a report on the financial sector and the UK's net-zero transition.

The EAC is a cross partisan committee tasked with review of public policy in relation to environmental protection and sustainable development. Auditing performance against such targets.

The report included various recommendations for the government to maintain the UK's status as a global leader in green finance.

Amongst other things, the report recommended that it becomes mandatory in law for private sector organisations in the UK to publish TPs, along with a compulsory framework for organisations preparing TPs to ensure accountability.

The EAC endorsed the Framework as published by the TPT but suggested that this should expand in more detail on "just transition principles" to ensure equity across communities affected by the climate transition and should emphasise reversing nature loss in long-term strategic plans.

In the government's updated Green Finance Strategy on 30 March 2023, DESNEZ announced plans to consult on TP requirements for large private companies towards the end of 2023. It is expected that TP requirements for private companies will reflect those required by the FCA for listed companies under the LRs.

Our comment

The EAC's report shows clear support and movement towards mandatory TPs across the private sector. The TPT's Framework and Sector Guidance aim to standardise the approach and facilitate adoption of TPs. It is likely that the government will follow suit, although it is yet to be seen when.

Foot Anstey's environment team will continue to follow the progress towards mandatory transition plans. Please contact Christian Silk and Sophie Jacobs if you wish to discuss how this impacts your organisation.

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