Tuesday 17th October
Last week, the Transition Plan Taskforce (TPT) released a Disclosure Framework for corporate climate transition plans, which it described as a “gold standard, to assist companies and financial institutions in playing their part in the transition to a net-zero environment.
The TPT was created by the UK Government at COP26 in November 2021 and launched by the Treasury in March 2022. It is led by a Steering Group of private and public sector leaders and has the responsibility of formulating guidelines to assist financial institutions and companies in revealing transition plans as part of annual reporting.
What is the TPT Disclosure Framework?
The TPT’s Disclosure Framework provides a clear plan for sharing information about climate transition plans for private businesses—those that choose to share this information voluntarily or those required by law to include it in their regular financial reports.
The Framework has been crafted with a broader international perspective building on the Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB) and draws on and is consistent with the Glasgow Financial Alliance for Net Zero (GFANZ) framework.
According to the TPT, its framework serves as the foundation for companies to articulate “credible and robust” transition plans within their future business strategy, as part of annual reporting. Additionally, the Framework facilitates the development of consistent and comparable company reports, aiming to mitigate the complexity of disclosure faced by firms.
What are the Framework’s pillars?
In line with the TPT’s November 2022 consultation, the Disclosure Framework revolves around five key elements: (1) foundations; (2) implementation strategy; (3) engagement strategy; (4) metrics & targets; and (5) governance.
The TPT suggests that organizations adopt a comprehensive and strategic approach, considering the contribution they can make to decreasing emissions across the entire economy. By doing so, an entity can enhance its flexibility, safeguard, and improve its long-term value, and simultaneously contribute to overall resilience.
In implementing its transition plan, the entity must actively disclose the specific actions taken across its business operations, products and services, and policies and conditions. This disclosure should articulate the measures employed to achieve its Strategic Ambition and the resulting implications for its financial position, financial performance, and cash flows. By transparently outlining its implementation strategy, the entity actively provides stakeholders with insights into the concrete steps it is taking to align with sustainability objectives.
Furthermore, the entity must actively disclose its Engagement Strategy, explaining how it actively collaborates with various stakeholders such as the value chain, industry peers, government, public sector, communities, and civil society to achieve its Strategic Ambition. This active disclosure highlights the entity’s commitment to fostering a collaborative and inclusive approach to sustainability.
Additionally, the entity must actively reveal the Metrics & Targets employed for actively driving and monitoring progress toward its Strategic Ambition, providing a quantitative and qualitative framework to actively assess its performance.
Lastly, in the Governance section, the entity is actively expected to disclose how it integrates its transition plan within its governance structures and organizational framework, demonstrating a commitment to embedding sustainability considerations into its overall governance.
What are the next steps for companies?
Initially, businesses can choose to adopt the framework voluntarily, but it is anticipated to eventually serve as the foundation for legal and regulatory obligations in the UK.
The Financial Conduct Authority (FCA) aims to enhance its requirements for the disclosure of transition plans, drawing on the insights from the TPT Disclosure Framework.
On 10 August 2023, the FCA indicated its plan to initiate consultations regarding the disclosure of transition plans by publicly listed companies, aligning with the TPT Disclosure Framework. Simultaneously, it will undertake consultations on the adoption of UK-endorsed ISSB Standards. These forthcoming requirements are expected to be applicable for accounting periods starting from January 2025, with the initial reporting anticipated to commence in 2026.
The FCA has advised firms to start engaging and familiarising with the Framework. The TPT has published additional guidance for preparers and users of transition plans alongside the disclosure framework. This guidance covers various aspects, including the climate transition planning cycle, technical mappings, and comparisons between the disclosure framework and other reporting frameworks, as well as legal considerations for companies preparing reports using the disclosure framework.
While a milestone for the UK, it doesn’t come without challenges
Built upon the principles of “ambition, action, and accountability” the framework seeks to facilitate the generation of uniform and comparable company reports while diminishing the complexity associated with disclosure.
While the Framework doesn’t specifically mention SMEs, entities need to engage with the SMEs in their supply chains to successfully report on their emissions and provide comprehensive transitions plans. Most SMEs are often lacking incentives and resources to report on their GHG emissions, yet banks need this data for their transition plans. This is going to be one of the main challenges going forward.
However, engaging with Perseus is a solution to this issue as it automates the reporting of SME sustainability data. Bankers for Net Zero’s Perseus programme, along with Icebreaker One, aims to automate GHG reporting for every SME in the UK using the principles of open banking. Perseus has been recognized in the Green Finance Strategy as the pathway to lead the country towards its decarbonization efforts. With Perseus, data will flow automatically from the real economy (energy companies) to the financial economy (banks) with the permission of the customer (SME), and improve the quality and impact of outcomes for stakeholders.
Additionally, Bankers for Net Zero is also convening the SME Advisory Group for the TPT to support the TPT to address the needs of SMEs by considering proportionate sustainability reporting and transition planning for SMEs. Recommendations made by this group will inform the TPT’s “forward pathway document”, due to be published in February 2023, which lays out future priorities for the transition plan ecosystem.
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Elena Pérez Celis,
Head of Policy & Public Affairs