The UK's Transition Plan Taskforce has launched its Disclosure Framework that aims to help companies move forward with transition planning and increase investor confidence in ESG financial products.
The voluntary framework outlines how listed companies and financial institutions will have to show their transition plans to reach a net-zero economy by 2050 and gives guidance as on what companies should consider when developing a transition strategy and the operating parameters to implement it.
The framework is designed to help more companies to develop transition plans and the UK to meet its net-zero goals. Only 16% of the UK's FTSE All Share companies have formulated and published a transition plan, according to research by FTSE Russell.
"For ESG investors, accountability is key – greenwashing concerns have been damaging to the market. The TPT framework recognises that without accountability and ambition, we can't achieve the net-zero gains required to meet our Paris Agreement commitments," said Anna Crosby, a director in the banking and asset finance team at Fieldfisher.
The combination of credible and robust transition plans that are backed with rigorous and tangible short-term actions should also make it easier for investors to assess the quality of transition plans and compare them.
It will also shed light on decarbonisation plans of high-emitting industries, including the oil and gas sector, which could give investors more confidence in ESG financing such as sustainability-linked loans or bonds for carbon-intensive issuers.
"All of this is a positive step forward in terms of encouraging genuine change and also improving investor confidence around ESG products," Crosby said.
The Transition Plan Taskforce was announced at the COP26 UN climate meeting in Glasgow in 2021 and launched in April 2022. Subsequent consultation on the TPT draft disclosure framework and implementation guidance was published last November at COP27 in Egypt.
The framework recommends that companies include material information relating to transition plans in their annual reports and publish their transition plan in a standalone document alongside annual reports and update the transition plan when there are significant changes, or at least every three years.
The UK's moves are being carefully watched by other jurisdictions due to the complexities of the reporting structure, which is designed to allow companies to collect the data that they need to report Scope 3 emissions through their whole value chain, however the difficulty of getting information from unlisted companies has raised concerns over data accuracy and liability.
"As the UK moves towards implementing transition plan disclosure requirements across the economy, this framework can act as a blueprint to inform policy approaches in other markets,” said David Schwimmer, CEO of London Stock Exchange Group, which also owns IFR.
Corporate transition plans detailed in the framework align with mandatory climate-related disclosure that is due to be replaced by new standards from the International Sustainability Standards Board and also draws on work by the Glasgow Financial Alliance for Net Zero and the Task Force on Climate-related Financial Disclosures.
The TPT will also publish detailed guidance for seven sectors: asset management; asset owners; banking; electric utilities and power generators; food and agriculture; metals and mining; and oil and gas, which will give companies full information on how to move forward with their transition planning. This will be opened for consultation in November and the disclosure requirements are expected to come into force in 2024.
While the framework is voluntary, it also has a pathway to UK regulation as part of the UK's Sustainability Disclosure Requirements. The Financial Conduct Authority said in August that it intends to consult next year on rules and guidance for listed companies to disclose in line with the ISSB and the TPT framework as a complementary package.