In 2021, at COP 26, the British government announced its intention for Britain to become the world’s first net-zero financial centre. It also launched the Transition Plan Task Force (“TPT”) with a view to drawing up a Gold Standard Disclosure Framework for transition plans.
Last week the TPT published its report Disclosure framework and implementation guidance.
The Disclosure Framework and Guidelines outline a baseline, in line with international disclosure standards, for organizations to report on their journey to achieving net zero.
The UK has committed to taking steps to make disclosure of transition plans mandatory.
What is a transition plan?
A transition plan describes:
- high-level objectives that organizations use to reduce climate risk;
- interim milestones; And
- actionable steps the organization plans to take to achieve these goals and milestones.
Key to the success of the Disclosure Framework is its consistency with international standards.
The ISSB has adopted IFRS-S1 and IFRS-S2, which serve as the global foundation for sustainability information for the capital markets.
IFRS-S2 requires an entity to “[any] climate-related transition plan [it] has”.
The TPT builds on the work of the ISSB and supports IFRS S2 compliance.
On this basis, the TPT has developed a sector-neutral Disclosure Framework in addition to sector-neutral Guidance and Sector Guidance for 40 sectors (publication in November 2023). The latter include “subsectors of the real economy” such as utilities and energy, food and drink and oil and gas and “subsectors of the financial sector” (e.g. banking, asset management, etc.).
The Disclosure Framework uses three guiding principles:
- Ambition – i.e. what are the organisation’s key strategic objectives and business model;
- Action – ie what policies it will apply to achieve these objectives and what resources will be made available; and how will the organization interact with stakeholders; And
- Responsibility – objectives (including interim objectives) and governance issues (e.g. board supervision and further training).
What are the next steps?
Some organizations have already established initial transition plans and these provide a useful model for other organizations embarking on the next steps on their journey to a net zero climate. In November 2023, the TPT will publish sector-specific guidance on transition planning and the UK government will consult on the transition plan requirements in the fourth quarter of 2024.