22 November 2022 (Updated 31 August 2023)

What’s the issue?

Investors are seeking to understand companies’ readiness to transition to a lower carbon economy; to do that, they need more transparent and granular disclosures. If the disclosure requirements are too high-level, then there is a risk that companies may ‘greenwash’ their reporting by providing vague information.

Providing investors with clear disclosures on transition plans and climate-related targets is a key step towards eliminating greenwashing from reporting and achieving the transparency that they need to understand companies’ true readiness for a lower carbon economy.

What are the requirements

Companies will disclose information to help investors understand the impact of climate-related risks and opportunities on their strategy and decision making, including their transition plans.

They are not required to create a transition plan or targets. However, a company needs to disclose the plans and targets that it has set or is required to have, including how it plans to achieve any climate-related targets.

The requirements aim to increase the transparency of disclosures. For example, disclosures about transition plans will include information on:

  • the key assumptions and dependencies that a company has used in developing its transition plan; and
  • how the company is currently resourcing the plan, or how it plans to resource it in the future.

What’s the impact?

Companies need to undertake a robust exercise to provide more transparent disclosures on their transition plans and climate-related targets. Commitments or targets disclosed need to be supported by a clear action plan.

Investors or others may challenge a company when its stated strategy in the transition plan is based on unlikely assumptions or dependencies – e.g. when it is dependent on unproven technology or unfunded activities.

Actions for management

  • Read our guide for more information on disclosing transition plans and targets.
  • Consider whether you have the detailed plans and targets to provide the disclosures required. If not, accelerate your activities to ensure that you will be ready.
  • Ensure that the right people from across your organisation are involved in developing your transition plan so that it is rigorous, achievable and approved by appropriate bodies.
  • Familiarise yourself with guidance on creating transition plans. For example, the UK Transition Plan Taskforce aims to create a gold standard framework for companies to consider when developing their transition strategy.

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