UK issues draft disclosure framework for climate transition planning
Why do we need this?
There is currently no explicit obligation under UK law for corporates or financial institutions to publish a transition plan, but the Government declared more than a year ago that asset managers, regulated asset owners and listed companies would be required to publish transition plans that consider the government’s net zero commitment or provide an explanation for not doing so. At the same time, entities starting to report under the TCFD framework may find it difficult to report in full without at least considering a transition plan, though the TCFD has its own guidance on transition planning.
The Government aims to "develop the gold standard for private sector climate transition plans applicable to the UK, but globally transferrable", which is particularly relevant as it transitions away from adherence to TCFD towards the emerging International Sustainability Standards Board ("ISSB") standards. It is expected that transition plans will be updated on a 3 year cycle, or more often if there are material changes (presumably to the business or science). However, progress against the transition plan should be reported annually under the TCFD (and eventually ISSB) rules.
What should a transition plan look like?
Transition plans, according to the draft disclosure framework, should be grounded in three principles: ambition, action and accountability. Keeping those principles in mind, the framework lays down key elements that sector neutral plans should contain:
- Foundation – objectives and priorities, business model implications
- Implementation strategy – short, medium and long term actions relating to the entity's business and operations, expected changes to products and services, policies and conditions to meet the transition plan, financial implications and sensitivity analysis (key assumptions and implications of these not being met)
- Engagement strategy –with the entity's value chain, industry, the public sector and civil society
- Metrics and targets – governance, business and operational metrics and targets, financial metrics and targets, greenhouse gas emissions targets (scopes 1, 2 and 3) and any intended use of carbon credits to meet the targets
- Governance – to include matters such as board oversight and reporting, accountability, culture, remuneration
Given that it is one year into a two year mandate, remaining work by the TPT can be expected to progress quickly. This includes sector specific guidance based on best practice guidance and new research. The TPT will also launch a "sandbox", where it will work with entities to "road test the TPT's outputs and gather practical feedback from the market". The final disclosure framework and implementation guidance is expected in summer 2023, with sector guidance to follow before the end of 2023. Crucially, the TPT then foresees that in 2023-24, there will be a regulatory updates of FCA Listing Rules to move from TCFD reporting to ISSB standards reporting, and the strengthening of obligations relating to transition plans in light of the standardised framework for their creation.
GET IN TOUCH
- Head of Risk & Operational Regulatory
- +44 20 7295 3205
- Email Me
- Environment & Regulatory
- +44 20 7295 3764
- Email Me
- Knowledge Counsel
- Corporate and M&A
- +44 207 295 3325
- Email Me