Developing transition plans for the UK

October 2023

On 9 October 2023, the UK Transition Plan Taskforce (TPT) issued its finalised Disclosure Framework (PDF 3 MB), which aims to provide a 'gold standard' for robust and credible transition plan disclosures. 

The framework has been developed to provide a set of good practice recommendations to help companies across the economy make high quality, consistent and comparable transition plan disclosures. It has been designed to align with the transition planning guidance developed by the Glasgow Financial Alliance for Net Zero (GFANZ), and to be consistent with, and build on, the reporting standards developed by the International Sustainability Standards Board (ISSB).

The FCA will draw from the TPT framework to strengthen existing requirements for listed companies, asset managers and asset owners. The UK government will also consult on the introduction of requirements for the UK's largest companies to disclose their transition plans if they have them. 

There is now a clear steer for financial services firms on what good practice looks like, and they should focus efforts on their transition plans if they have not already done so. 

What has been published?

In addition to the main Disclosure Framework, the TPT published guidance for preparers and users of climate transition plans, including: 

• High-level sectoral guidance across 40 sectors — including insurance. 
• Guidance on the climate transition planning cycle.
• Technical mappings and comparison between the Disclosure Framework and other reporting frameworks.
• Legal considerations for companies preparing reports using the Disclosure Framework.
• Implementation guidance.

On 13 November, the TPT launched consultations on seven sets of sector-specific guidance (‘Sector Deep Dives’) — including for asset managers, asset owners and banks. The consultations run until 29 December 2023, with guidance expected to be finalised in February 2024.

The Disclosure Framework — a recap

The TPT framework is underpinned by three guiding principles:

1. Ambition — reflecting the urgency of action. 

The TPT recommends disclosure of a company's strategic climate ambition and how this is reflected in its implementation and engagement approaches, governance and accountability arrangements and financial plans. An entity should take a `strategic and rounded' approach, considering the actions that it can take now to capture opportunities, minimise future risks and protect and enhance its long-term value. This includes:

• Considering three inter-related channels in designing its transition plan — decarbonising the entity, responding to the entity's climate-related risks and opportunities, and contributing to an economy-wide transition.
• Disclosing whether and how it has identified any dependencies of the transition plan on the entity's stakeholders, society, the economy, and nature, throughout its value chain, that may give rise to sustainability-related risks and opportunities.

2. Action — translating strategic ambition into concrete, short-term steps. 

A transition plan should:

• Translate ambitious objectives and priorities into concrete steps to be taken in the short, medium- and long-term.
• Set out a roadmap of actions that will contribute to meeting an entity's strategic ambition.
• Consider Scope 1, 2, and 3 emissions and prioritise decarbonisation through direct emission reduction over purchasing carbon credits.
• Seek to ensure that climate is appropriately considered in decisions with long lifetimes to avoid the risk of “carbon lock-in” and to ensure resilience to the greater incidence of extreme weather expected in the near future. Short-term actions should seek to deliver adaptation and mitigation benefits now, and to fill existing deficits of preparedness for extreme weather.
• Ensure that planned actions are underpinned by appropriate resourcing plans. An entity should assess the sensitivity of its plan to changes in key assumptions and external factors on which it depends, and should seek to mitigate delivery risks where possible.

3. Accountability — enabling delivery through robust governance and reporting.

Transition plans are integral to companies' wider corporate strategies, therefore their delivery should be fully integrated into an entity's business, financial planning and governance processes. Entities should define clear roles and responsibilities for the delivery and oversight of transition plans and take steps to align culture and incentive structures with the strategic ambition described.

Entities should report material information about their transition plan within general purpose financial reports, including annual reporting on progress against quantified and timebound metrics and targets. Transition plans should be flexible, dynamic, and responsive to new information and external developments — and updated and reviewed regularly.

What does good look like?

The TPT has drawn on the components identified by GFANZ to set out the five key elements of a good practice transition plan. Entities should disclose:

1. Foundations: the strategic ambition of their plan and the high-level implications that the transition plan will have on its business model and value chain, as well as the key assumptions and external factors on which the plan depends.
2. Implementation Strategy: the actions they are taking within their business operations, products and services, and policies and conditions to achieve the strategic ambition, as well as the resulting implications for their financial position, financial performance and cash flows.
3. Engagement Strategy: how they are engaging with their value chain, industry peers, government, public sector, communities and civil society in order to achieve the strategic ambition.
4. Metrics & Targets: the metrics and targets being used to drive and monitor progress towards the strategic ambition.
5. Governance: how they are embedding transition plans within their governance structures and organisational arrangements to achieve the strategic ambition.

Mandating transition plan disclosures

The TPT's work does not have direct regulatory or legislative impact. However, regulators and the government will use it build on existing transition planning requirements, such as:  

• The FCA's rules for listed issuers (on a comply or explain basis) — disclosures require detailed assessment of the TCFD's all-sector guidance, which includes that entities should describe their plans for transitioning to a low carbon economy. 
• Disclosures for FCA-regulated asset managers and owners — again, entities are required to take reasonable steps to ensure that these are consistent with the TCFD's all-sector guidance. See our article here.
• FCA guidance encourages listed companies, asset managers and asset owners that are headquartered in, or operating in, a country that has made a commitment to a net zero economy to consider the extent to which they have considered that commitment in developing and disclosing their transition plans.

Looking ahead:

• In Q4 2023, following the commitments made in the 2023 Green Finance Strategy (PDF 16.7 MB), the UK government will consult on transition plan requirements for large public and private companies. 
• The FCA has committed to drawing on the TPT Framework as it develops disclosure expectations for listed companies, asset managers and FCA-regulated asset owners. 
• In 2024, as set out in Primary Market Bulletin 45, the FCA intends to consult on rules and guidance for listed companies to disclose in line with the UK-endorsed ISSB standards and the TPT Framework as a complementary package.

Implications for firms

The FCA encourages listed companies and regulated firms to engage early with the TPT Framework — even before formal consultations on FCA-mandated disclosures are launched. Likewise, companies that can expect to fall within the scope of the government's consultation should act now to develop their capabilities. 

Entities should consider comparing existing transition plans against the TPT framework and identifying areas for improvement. Where entities have not yet drawn up a plan, the TPT's guidance will provide a robust starting point.