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UK launches ‘gold standard’ approach to transition planning

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The Transition Plan Taskforce (TPT) has published its Disclosure Framework and accompanying Implementation Guidance. It has also launched a Sandbox for companies and financial institutions to test implementation.

  • TPT has launched the framework for a ‘gold standard’ in transition planning.
  • Effective transition planning will be critical to the achievement of net zero.
  • UK Treasury Minister James Cartlidge said it was another sign of the UK’s position as a net zero financial hub.

The Bank of England has warned that climate change poses risks to the stability of the financial system as well as to individual firms. Sarah Breeden, executive director for Financial Stability at the Bank of England said: “Actions taken by the private sector today will determine the size of future risks which is why it is crucial financial and non-financial firms develop and disclose robust transition plans with a focus on concrete short-term action.”

It is understood that high-quality transition plans are crucial for the transition to net zero but, until now, exactly what constitutes high quality has not been clear. What is clear is that credible transition plans create transparency and accountability for companies and financial institutions to meet their net zero targets, and will enable investors to make better-informed capital allocation decisions.

What does a good transition plan look like?

Early discussions focused on the importance of having transparent and practical steps in transition planning. A complete transition plan could involve internal realignment in many areas, ranging from companies’ business model, governance and accountabilities, and much, much more.

The Transition Plan Taskforce has outlined three parts of the process. They are:

  • The TPT Disclosure Framework makes recommendations for companies and financial institutions to develop gold-standard transition plans.
  • The TPT Implementation Guidance sets out the steps to develop a transition plan, as well as when, where and how to disclose the plan.
  • The Sandbox will test the Framework and Guidance to help users and preparers create their own transition plans.

All three are open for consultation until 28 February 2023.

Short term concrete action will be key to success

The sector-neutral Framework emphasises the need for concrete, short-term action by companies and financial firms across the economy. The TPT recommends that companies and financial firms consider the full range of levers at their disposal to contribute to, and prepare for, an economy-wide transition to net zero. This will help avoid potential unintended consequences of ‘paper decarbonisation’. A summary of the recommendations can be found here.

Amanda Blanc, group chief executive of Aviva (LSE:AV.L) and co-chair of the TPT, said: “In recent years, we have seen a wave of private companies announcing their ambitions to contribute to net zero. We now need financial firms and companies to come forward with high-quality plans to show how they will meet their targets.

“Transition plans are a key building block for delivering a net zero future. This is why the work of the TPT is so important. Building on the excellent work from GFANZ and the ISSB, the TPT Disclosure Framework will help ensure that everyone has a consistent understanding of what is needed.”

David Schwimmer, chief executive of the London Stock Exchange Group (LSE:LSEG), added: “Financial markets can only play a central role in decarbonising our economy with access to high quality, consistent and comparable data. As other countries consider mandatory transition plans, this work could inform similar regulatory approaches around the world.”

What is the Transition Plan Taskforce?

The UK Government launched the Transition Plan Taskforce in May to create the gold standard for transition plans. That meant ensuring that companies were given guidance to develop and publish rigorous and robust transition plans that detail how they will adapt and decarbonise as the UK moves towards a net-zero economy by 2050. This followed the Government’s commitment at COP26 to move towards mandatory transition plan disclosures, with the Financial Conduct Authority (FCA) already having introduced initial disclosure rules for transition plans.

In January 2022, the FCA introduced rules for listed companies and large regulated asset owners and asset managers to disclose transition plans as part of their Task Force on Climate-Related Financial Disclosures (TCFD)-aligned disclosures, initially on a comply or explain basis. The first disclosures under these rules will be made in 2023. The TPT’s outputs will support UK firms and companies to publish high-quality plans under existing rules.

Future development plans

Over the next two years, the FCA will draw on the TPT’s outputs to strengthen future disclosure rules for listed companies and financial firms. The FCA sits on the TPT Steering Group and Delivery Group and participates in its workstreams. It is expected that the FCA will incorporate the Taskforce’s recommendations into its own disclosure requirements.

The TPT is also working with international frameworks which are preparing guidance on transition plan disclosures, including the Glasgow Financial Alliance for Net Zero (GFANZ) and International Sustainability Standards Board (ISSB).

The Taskforce said it would take forward the foundational work from these bodies to develop granular transition plan recommendations suitable for incorporation into regulatory frameworks in the UK. Both the ISSB and GFANZ sit on the TPT Steering Group.

Along with the UK, many countries are expected to adopt the ISSB’s global baseline and build on it. The TPT says that its framework should be viewed as a UK jurisdictional initiative to apply and build on the ISSB’s baseline.

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