Climate Transition Planning

With the pressure on tangible action on climate change heating up, Transition Plans have emerged as the cornerstone of how companies are not only showing shareholders how their company will grow in an increasingly net-zero economy, but also internally shaping the way the business looks at growth in the coming decades. This can allow businesses to better identify key emerging opportunities and risks with a climate lens and introduce strategies to show how revenue and margins will remain resilient under any future scenario.

Developing a strong Transition Plan is a process that will allow businesses to understand the dependencies and impacts they have across the economy and beyond in a level of detail often overlooked in everyday operation - showing how changes in climate might impact your bottom line, and how you can respond confidently and quickly to build a business which thrives under a net-zero world.

Backed by the work done by the Transition Plan Taskforce (TPT) over the last few years, the topic of Transition Plans has been taken up strongly by the market and by regulators and governments, and the Financial Conduct Authority has subsequently adopted the updates to the TCFD recommendations, which therefore requires standard listed companies2 and FCA-regulated asset owners, managers and pension providers3, to disclose transition plans on a “comply or explain” basis starting in 2023.

Off the back of the UK Government’s 2023 Green Finance Strategy, the government is also pushing for the same requirements on the UK’s largest private companies. From April 2022, over 1,300 of the largest UK-registered companies and financial institutions are required to disclose climate related financial information on a mandatory basis in line with TCFD recommendations, with first disclosures made in 2023. This takes in many of the UK’s largest traded companies, banks and insurers, as well as private companies with over 500 employees and £500 million in turnover

Value creation, protection, and resilience building

While some companies may see the creation of a climate transition plan as simply a compliance exercise, it provides a significant opportunity for a business to take stock and reassess their strategy and business plans. This exercise will likely reveal opportunities for new revenue streams which emerge in a low-carbon economy, and which your business may be well-placed to move into or capitalise on. Transition planning can also drive resilience by understanding where your supply chain might be most impacted, highlighting carbon-exposed components of your operations, and proactively addressing future climate-related risks.

Decarbonisation statements require action

Despite there being no shortage of climate commitments and net-zero targets which have hit the market, climate transition plans provide confidence to the market and investors that these commitments will turn into real action. Businesses are beginning to realise that actions need to be taken now to invest, pivot, or rethink their plans, and that delay in action could create large cost headaches down the road or require a public withdrawal of targets.

This action is required at both the strategic and operational level

Companies are recognising the overarching impact the transition will have on their business model – from the goods they offer, to how they are produced and distributed. That makes it important for companies to approach from a top-down strategic as well as a bottom-up implementation point of view in order to fully capitalise on the transition. Only approaching climate from a top-down view without understanding how it practically will impact your day-to-day operations could lead to issues down the road as you attempt to hit your targets.

Mandatory requirements

At present, climate transition plans are included in the FCA’s listing rules for some listed companies and asset owners and managers but are expected to become mandatory for all in the future. The government launched UK Transition Plan Taskforce is also expected to publish its finalised framework and guidance in mid-2023.With the UK Government moving towards making disclosure of climate transition plans mandatory, we envisage other major economies will follow this approach.

We are passionate about helping organisations to deliver on their ESG agenda. Our Climate Risk & Strategy team are already supporting leading UK organisations from a range of sectors including industrials, media and consumer goods, to implement the recommendations of the TPT’s Draft Framework.

The first step is a readiness review of your current plans against best-practice guidance and setting aspirations for your business, before then progressing to decarbonisation options assessment, implementation, and finally disclosure of transition plans. KPMG can bring the experience, skills and expertise to assist companies throughout their transition plan journey, wherever support is needed.