On 9th October 2023, the UK’s Transition Plan Taskforce (TPT) launched its Disclosure Framework.
The TPT, which was announced at COP26 and formally launched by HM Treasury in April 2022, has established what it calls a ‘gold standard’ for transition plan disclosures, thereby ensuring that organizations delineate robust, credible, and actionable transition plans towards achieving their climate objectives.
Why is a standard for climate transition plans needed?
While many companies, asset owners and asset managers have net zero targets, until now there was no standardised way to credibly document how they will achieve their targets. The TPT Disclosure Framework for the first time provides market participants a clear set of guidelines to make high-quality, consistent and comparable transition plans. The framework intends to provide investors and other stakeholders with better forward-looking information to understand if a company’s actions match their intent.
Overview of the TPT Disclosure Framework
One of the most salient features of this framework is its alignment with international reporting standards, including the International Sustainability Standards Board (ISSB).
The TPT Framework applies three guiding principles of Ambition, Action and Accountability. The Framework is then organised across five disclosure elements, as shown below, each designed to capture a critical aspect of an organization’s transition journey towards a low-carbon economy:
1) Foundations:
This element sets the foundation for the transition plan, highlighting the company’s climate goals and priorities. It allows entities to summarize their climate ambitions and key targets, while promoting disclosure of interdependencies with nature and just transition matters that impact the plan’s delivery.
2) Implementation Strategy:
The Implementation Strategy focuses on the short-to-medium term actions the company plans to undertake to align its operations with its transition objectives. This element pushes for transparency on near-term actions aimed at achieving long-term goals, encompassing changes to strategy, quantification of planned activities, and a sensitivity analysis to understand key assumptions and potential impacts on the transition plan.
3) Engagement Strategy:
This element advocates for disclosing engagement strategies with external stakeholders, covering the supply chain, industry peers, and the public sector, to foster collaboration, overcome barriers, and accelerate the economy-wide transition to net zero.
4) Metrics and Targets:
This element urges the disclosure of emissions targets, use of carbon credits, and various metrics for monitoring transition progress. It promotes a broader disclosure encompassing climate governance, business activities, and financial metrics to fully grasp the transition journey.
5) Governance:
Governance emphasizes structured mechanisms for transition plan oversight, advocating for disclosure of Board and senior management roles in plan approval and delivery, progress inclusion in executive pay, and operational model changes enabling the plan’s execution.
Conclusion: shifting expectations in the UK and globally
In the UK, the FCA has stated its intent to draw on the TPT Disclosure Framework as it further develops its disclosure expectations of listed companies, asset managers and FCA-regulated asset owners. The FCA intends to consult in 2024 on rules and guidance for listed companies to disclose in line with the UK-endorsed ISSB standards and the TPT Disclosure Framework.
While developed in the UK, the framework can be applied globally. The ISSB Standards (IFRS S1 and S2) – which are forming a global baseline for sustainability related financial disclosure – expect the disclosure of transition plans. The TPT has aligned its efforts with the ISSB and the new framework supports compliance with IFRS S2.
The TPT is already working on sector specific disclosure frameworks, prioritising industries with a key role to play in decarbonisation and the transition to a net-zero global economy.