On 9 October 2023, the UK’s Transition Plan Taskforce (“TPT“) published its final disclosure framework (“Disclosure Framework“) and supporting documents. The Disclosure Framework is intended to act as a “gold standard” for companies to develop, disclose and deliver their climate transition plans.
The Disclosure Framework seeks to offer practical support to UK companies already disclosing their transition plans on a voluntary basis or those preparing to do so in accordance with international sustainability standards, in particular, the European Sustainability Reporting Standards (“ESRS“) and those of the International Sustainability Standards Board (“ISSB“). Given the proliferation of sustainability standards across the globe, stakeholders are likely to welcome TPT’s alignment with ESRS and ISSB. We understand the ISSB itself may adopt TPT’s Disclosure Framework as part of its own guidance on complying with IFRS S2, ISSB’s standards that deal with climate-related disclosures.
In this blog, we set out a high-level overview of the Disclosure Framework and implementation guidance, including key changes from the TPT’s initial November 2022 consultation, which we previously covered here.
Climate transition plans in the UK
As set out in our more detailed June 2023 briefing, a transition plan sets out an organisation’s strategy to adapt its business model to a low-carbon economy.
More broadly, the UK has adopted a legally binding target under the Climate Change Act 2008 to achieve net-zero emissions by 2050. This commits the UK to reduce its greenhouse gas (“GHG“) emissions by 100% by 2050 compared to 1990 levels. The UK’s sixth carbon budget, adopted in April 2021, further commits the government to reduce emissions by 78% by 2035 compared to 1990 levels.
TPT’s Disclosure Framework is intended to facilitate the decarbonisation of businesses to help achieve these targets.
TPT’s Disclosure Framework
In keeping with the November 2022 consultation, the Disclosure Framework is centred on three principles: ambition, action and accountability. In practice, this means transition plans will be expected to cover:
- high-level ambitions to mitigate climate change risks and leverage opportunities (“Strategic Ambition“);
- short-, medium- and long-term actions to achieve these strategic ambitions; and
- governance and accountability mechanisms supporting delivery of those actions.
More specifically, the three principles are put into effect through five central disclosure elements:
- Foundations, which cover the scope of the transition plan by reference to the company’s objectives and priorities in transitioning to a low-carbon economy (ie, its Strategic Ambition), including the impact on its business model and value chain and key assumptions and external factors affecting the achievement of the Strategic Ambition.
- Implementation strategy, which requires companies to disclose the policies implemented and actions taken in pursuit of the Strategic Ambition, including the impact of such policies and actions on financial position, performance and cashflow.
- Engagement strategy, which requires companies to disclose their plan of engagement with key stakeholders to achieve their Strategic Ambition and, in particular, their engagement with its value chain, industry, government, public sector, host and affected communities and civil society.
- Metrics and targets, which require companies to identify the key metrics and targets by reference to which they monitor and assess their progress in achieving the Strategic Ambition.
- Governance, which requires companies to disclose how they are embedding their transition plans within their governance structures to achieve the Strategic Ambition.
These five disclosure elements are further broken down into sub-elements, totalling 19 individual recommended disclosures that companies will be required to report against in their transition plans.
TPT suggests that transition plans are updated at least every three years, with periodic updates in the event of significant changes. In interim years, entities should report on progress against the commitments set out in the current transition plan, as well as on all other content deemed to be material to investors, in line with ISSB-aligned disclosures.
Changes from November 2022 consultation
The Disclosure Framework is generally consistent with the draft published as part of the November 2022 consultation, although a few changes have been made as a result of feedback received.
In particular, two changes are notable:
- The foundations element has been expanded to require companies to report on their Strategic Ambition, value chain, key assumptions and external factors affecting its achievement. Previously, this element was limited to disclosure of the company’s objectives, priorities and business model implications of its transition plan.
- The implementation strategy element has been curtailed as a result of implementation concerns highlighted in TPT’s July 2023 status update. In practice, this means companies will no longer be required to disclose the results of their sensitivity analysis as part of the disclosures relating to their implementation strategy. This would have previously involved disclosing “key assumptions and dependencies underlying the entity’s business, operational and financial plans and the implications for achievement of the strategic ambitions in its transition plan if its central assumptions are not met.”
Interaction with ISSB, TCFD and ESRS
The wording of the Disclosure Framework has been updated to be more consistent with the ISSB standards. This is in line with TPT’s aim to align the Disclosure Framework closely with the ISSB standards, the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD“) and the ESRS. To aid interoperability with these standards, TPT has published technical mapping documents.
Implementation guidance and next steps
TPT has also published additional guidance for each recommended disclosure. Notably, the implementation guidance, previously set out in one document as part of the November 2022 consultation, has now been split into two parts:
- Implementation guidance, which sets out a practical guide for companies in relation to each stage of the transition planning cycle; and
- Interpretative guidance, which sets out the importance of element and sub-element of the Disclosure Framework as well as additional disclosure considerations that companies may want to take into account when preparing their disclosures.
In addition to the implementation guidance, TPT has published summary guidance for 40 sectors outlining the decarbonisation levers and metrics and targets which may be relevant to each particular sector. This guidance is based on existing market guidance and is open to comment until 24 November 2023.
TPT will also consult on sector deep-dive guidance for seven additional sectors: asset managers, asset owners, banks, food and beverage, electric utilities and power generators, metals and mining, and oil and gas. The draft sector deep-dives are intended to provide supplemental disclosures in relation to each of the relevant sectors, as well as sector-specific guidance and references to third-party materials. They are expected to be published on 13 November 2023 and finalised in February 2024.
In its Primary Market Bulletin 45, the FCA set out plans to consult on guidance that will note its expectations for listed companies’ transition plan disclosures, by reference to the Disclosure Framework. Note that, in the FCA’s view, TPT’s Disclosure Framework will help issuers “report more effectively on the transition plan-related aspects of IFRS S2“, which is expected to form a core component of the UK Sustainability Disclosure Requirements expected to come into force from 2025.