Greater quantity and quality of plans are required, while mandatory disclosures from governments could provide “sense of urgency”.
Research from EY found that just 5% of FTSE 100 companies have published transition plans that could be deemed credible under the Transition Plan Taskforce’s (TPT) disclosure framework, but overall businesses are generally “moving in the right direction”, Rob Doepel, UK Managing Partner for Sustainability at EY, told ESG Investor.
Analysis by the Big Four consultancy firm found that 95% of FTSE 100 businesses had so far failed to disclose “sufficiently detailed” transition plans despite four-in-five UK listed companies stating they are committed to delivering on 2050 net zero commitments.
Jacques Morris, Team Leader at the TPT Secretariat, told ESG Investor that while the number of credible transition plans are “small now” he expects to see a “significant increase” in the near-term, noting that TPT’s framework only came out in November last year.
“Don’t let the perfect be the enemy of the good at this stage,” he added. “I think any increase is encouraging. And we’ll expect to see quality increasing over time.”
EY analysed the transition plans published by FTSE 100 firms, as of 31 January 2023, and assessed them against the TPT’s draft disclosure framework.
Snowball effect
“Considering that the framework’s only been out a few months it’s quite welcome to see this sort of research,” said Morris. “But we still need to see an increase in quantity and quality of transition plans.”
EY’s analysis found that 78% of FTSE 100 companies were adhering to the initial ‘Foundation’ elements of the TPT sector-neutral framework, which require companies to publish transition objectives and priorities, as well as implications for their business modelling. Doepel added it’s likely that “actual planning exceeds what we’ve reported as part of this research”.
Morris estimates that during the TPT’s consultation phase following the launch of the framework in November – which closed on 28 February 2023 – there had been engagement from more than 500 organisations during the process.
In 2023, the TPT aims to finalise its disclosure framework and implementation guidance and will develop sectoral guidance. It also plans to increase its engagement with other jurisdictions and standard setters, including the International Sustainability Standards Board (ISSB) to support global convergence on transition plans.
“We see that there is strong demand from investors for high quality plans […] and we’re seeing that companies are on board to produce them – this is snowballing now,” Morris said.
“Inaction is not an option”
Last week’s Green Finance Strategy revealed that the UK government will undertake a further consultation on making disclosure of climate transition plans mandatory in Autumn 2023.
Doepel said that the government’s movement towards a decision on mandatory disclosure, would provide businesses with a clear deadline to publish their transition plans and “highlight the sense of urgency that is required”.
According to Doepel, a key reason for FTSE 100 companies currently lack credible net zero transition plans is that they are not legally required to do so.
“Governments can also play a role in providing certainty and a sense of urgency by moving ahead with mandatory disclosure regulation,” he said. “This would provide businesses with a clear deadline and emphasise that inaction is not an option.”
He underlined that businesses must act now to develop more detailed and rigorous transition plans which focus on the ‘Implementation’, ‘Engagement’ and ‘Governance’ elements of the TPT framework.
EY’s analysis also showed that 17% of FTSE 100 firms are still in the stage of setting targets and are yet to publicly disclose any actionable plans.
Despite companies being able to see “what good looks like” from the TPT’s implementation guidance many “still aren’t making sufficient progress”, he said.
Overall, FTSE 100 companies scored lower in the implementation strategy element of the TPT framework, with 21% disclosing against limited elements of the TPT criteria.
Morris said that transition plans are a key means of “raising the investment required” for the climate transition. He warned that the quantity and the quality of public plans in the UK is currently insufficient to support the significant capital allocation that’s required.
Doepel also highlighted that there was the potential for business to claim a “first-mover advantage”, which would help establish them as green leaders in their sectors. It would also build a positive reputation with key shareholders and attract the best and brightest talent who look for employers that care about the climate transition.
“There’s a clear chance to claim a competitive edge here and business can’t allow inaction and slow progress to hinder these opportunities,” he added.
