An update from the Transition Plan Taskforce

Today, the Transition Plan Taskforce (TPT) publishes a key update as it prepares to release the final iteration of its sector-neutral disclosure framework and accompanying implementation guidance later this year. The update features insights on:

I. Key themes and outcomes of the TPT’s stakeholder disclosure framework consultation.

II. Progress is being made on embedding transition planning into the regulatory environment in the UK and around the world.

III. The intended next steps towards the publication of the final disclosure framework and standing up of the sector guidance workstream.

In my previous blog, we discussed the key features of a good transition plan –

• clear commitments, like greenhouse gas reduction targets (e.g., Net Zero),
• an assessment of the plan's impact on the company's strategy and business model,
• an outline of actionable steps to meet the commitments, measure and disclose performance,
• and governance mechanisms to implement the transition.
  

With today's status update from the TPT, we look at what this means for the future of transition planning.

In good news for organisations already in the process of building their transition plan, feedback indicated strong support for the draft and its key components – 85% of stakeholders agreed with the overall framework across all groups of respondents. The consultation results also indicated widespread support for better alignment with existing standards, including Glasgow Financial Alliance for Net Zero (GFANZ) and the newly developed IFRS 1 and 2 standards from the International Sustainability Standards Board (ISSB), as well as more clarity on ambition benchmarks and how to tackle certain difficult sub-elements.

Therefore, while there will need to be some work by the TPT in aligning definitions between frameworks and guiding companies on implementation , we anticipate minimal substantial changes in the final sector-neutral framework to be released by TPT in coming months.

The core building blocks are expected to remain, encouraging companies to:

•  Take a strategic and rounded approach to transition planning;
• Work towards integrating material information from their transition plan into general-purpose financial reporting; and
• Work towards publication of a comprehensive and transparent transition plan with a strong focus on accountability.

Another key takeaway from the TPT’s status update is the start of the global integration of transition planning into regulatory reporting requirements worldwide – a big step for the framework which was previously mostly contained to the UK.

Significant developments related to transition plan disclosures in regions highlighted by the TPT include:

• UK: The Financial Conduct Authority (FCA) is expected to consult on strengthening transition plan disclosure requirements, alongside implementing the newly published (and UK-endorsed) ISSB S2 standard. A consultation on the green finance strategy for large private companies is anticipated in Q4.
  
• Europe: The draft delegated Corporate Sustainability Reporting Directive (CSRD) on corporate sustainability-related impacts is set to include disclosure on transition plans as part of its reporting standards, as well as additional mandatory transition planning requirements for large corporations under the proposed Corporate Sustainability Due Diligence Directive.
• United States: The Securities and Exchange Commission (SEC) draft rule requires public firms to disclose voluntarily adapted transition plans as part of their climate-related risk management strategy.
• Rest of world: Additionally, the TPT update highlights new markets where transition plan disclosure requirements may be considered in the future (i.e. Japan, Singapore, Hong Kong, Australia, New Zealand, G7, and G20).

There are two key takeaways from this update that companies should be noting:

1. Transition plans are increasingly being used to understand how companies are managing a low-carbon transition, and regulatory adoption continues to pick up pace globally.
2. With the core building blocks from the draft framework likely to remain, organisations would benefit from beginning to develop their transition plan and decarbonisation strategies now rather than waiting for the final version of the framework to be published later this year

While many global jurisdictions continue to consider how to incorporate transition planning requirements into regulation, the TPT provides a clear foundation on which to prepare and develop a transition plan.

To help you get started today in building your transition plan, KPMG have released a guide on four key steps any business needs to take to develop a credible, robust, and valuable transition plan:

1. Diagnose your current business - understanding where you are, where your peers are heading, and what is possible for your business ambition
   
2. Strategise your path forwards, identifying the opportunities and investments that can bring you to your target, planning for success, and engaging with your value chain
3. Transform the way your business operates, ensuring you have the right governance and ways of working to bring life to your transition
4. Report on your progress both internally and externally, driving a single source of truth and giving you the right tools to make strategic decisions