Members of UK’s Transition Plan Taskforce reiterate the need for a “significant uptick” in net zero plans, as framework and implementation guidance are refined.
The Transition Plan Taskforce, created by the UK government as part of efforts to establish Britain as a Net Zero Financial Centre, has urged listed companies and financial institutions to act quickly on developing “strategic and rounded” transition plans ahead of expected regulatory requirements.
Over the past 12 months there has been real momentum around transition plans, despite the war in Ukraine and the cost-of-living crisis creating a difficult environment for furthering climate action, said Jacques Morris, Team Leader, Transition Plan Taskforce (TPT) Secretariat.
“There is a wider optimism that progress has been made, regardless of instability,” Morris said, speaking yesterday at a City & Financial Global event on climate transition plans. “This speaks to a lot of demand for high-quality transition plans from investors, companies and civil society.”
At COP27 the UK’s TPT published its disclosure framework and implementation guidance which offers recommendations for financial institutions and corporates on their climate transition plans.
The TPT is currently encouraging market participants and other stakeholders to provide feedback on its proposals. The consultation survey is open for responses until 28 February. The TPT is also inviting organisations preparing transition plans to join its Online Sandbox to provide feedback on their experience applying its disclosure framework and implementation guidance.
Morris, also Head of Policy at the UK Centre for Greening Finance and Investment, and Policy Lead, for the Oxford Sustainable Finance Group, said that the consultation offers an opportunity to hear from market participants and ensure that transition plans do not become a “box-ticking” exercise, but a process for coming up with “a forward-looking, strategic plan that brings a long-term net zero commitment into the boardroom”.
UK-listed companies and large regulated asset owners and asset managers are required to disclose transition plans as part of their Task Force on Climate-Related Financial Disclosures (TCFD)-aligned disclosures, with the first disclosures under these rules due this year.
The Financial Conduct Authority (FCA), which sits on the TPT’s steering group, will draw on its outputs for its increased transition plan disclosure expectations of listed companies, asset managers and regulated asset owners.
The TPT’s draft disclosure framework calls on organisations to take a “strategic and rounded” approach to transition planning, based on its guiding principles of ambition, action and accountability.
In December, the FCA encouraged “early engagement” with the TPT draft disclosure framework in a Primary Market Bulletin article.
Speaking yesterday, Mark Manning, Technical Specialist, Sustainable Finance and Stewardship at the FCA, said credible transition plans were needed to underpin the “credibility” of instruments such as sustainability-linked bonds, as well as to providing consistent information to investors more broadly.
Also speaking at the event, Matt Scott, Senior Director of Willis Towers Watson’s Climate & Resilience Hub and co-Chair of one of the TPT Delivery Group’s workstreams, shared similar sentiments.
“We need to make sure we are managing climate risk at the portfolio level and dealing with the systemic challenge that we face, and not just creating a disclosure framework that might lead to firms looking to manage reputations rather than dealing with the underlying risk,” said Scott, formerly an adviser to the Bank of England on climate policy.
“Greening your own balance sheet doesn’t necessarily mean greening the economy as a whole,” he told onlookers. “There’s many ways that a portfolio can be decarbonised that don’t necessarily lead to a reduction in global emissions.”
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.
Today, the international non-profit CDP published a report analysing the disclosure of around 19,000 companies globally. CDP work closely with the UK Transition Plan Taskforce, which is developing mandatory standards for listed companies and financial firms to ensure plans are comparable.
The report found that the majority of companies do not have a credible plan to transition to net zero amid incoming mandatory disclosure.
Consistency is king
The TPT was created to provide a “gold standard” for other regulators beyond the UK to adopt, said Dr Tony Rooke, Executive Director, Head of Transition Planning Implementation, Glasgow Financial Alliance for Net Zero (GFANZ).
On 15 June 2022, GFANZ announced its transition plan guidance, and has worked closely with the TPT on the development of its framework.
“We needed to make sure that we didn’t go off in one direction, the TPT go off in another, and everyone get confused,” Rooke told onlookers at the event. “It’s about making sure that we don’t have fragmentation.”
Rooke also stressed that the TPT seeks to provide a consistent framework that both financial institutions and the real economy – companies that produce goods and services – can use to develop climate transition plans that drive changes in the economy.
The TPT’s recommended approach to the design, development and disclosure of transition plans covers three inter-related channels: decarbonisation, responding to climate-related risks and opportunities, and contributing to economy-wide transition.
The TPT framework also sets out the concept of material interdependencies, which describes the interplay between the actions an entity is taking in order to achieve the objectives and priorities outlined in its transition plan, and other sustainability-related matters, including the natural environment and stakeholders such as the workforce, supply chains, communities or customers.
“A good quality transition plan will start to articulate [material interdependencies] too,” said Morris, urging organisations to simply “get going” with the development of their transition plans, reiterating the need for a “significant uptick” to create a proliferation of useful information to help further refine the framework and implementation guidance.
“This is a process to develop a forward-looking strategy and act on it – it’s not just a piece of paper.”