On 9 October 2023, the UK’s Transition Plan Taskforce (“TPT”) issued its Disclosure Framework and Implementation Guidance (the “Framework”).
The Framework acknowledges that there is an urgent need to transition to a low-greenhouse gas and climate-resilient economy, and states that to meet this challenge a fundamental transformation in business and finance is required. To this end, the Framework recommends that companies publish a transition plan (“Transition Plan”), through which an entity will set out its ambitions, milestones, and actionable steps.
The Framework continues to be guided by three guiding ‘A’ principles (as set out in more detail from our blog on the TPT’s draft recommendations in 2022): Ambition, Action and Accountability. Against these guiding principles, the Framework sets out 19 recommended disclosures against which companies must report, which are grouped together under the following headings:
- Foundations: a company should disclose within its Transition Plan its strategic ambition (“Strategic Ambition”), which comprises of its objectives and priorities for responding and contributing to the transition towards a climate-resilient economy. It should also set out whether and how the company is pursuing these priorities in a manner that captures opportunities and avoids adverse impacts for its stakeholders and society. As part of this disclosure, the Framework states that a company should disclose any high-level implications its Transition Plan will have on its business model, including the assumptions and external factors on which its Transition Plan depends;
- Implementation Strategy: a company should disclose the actions it is taking within its business operations, products and services, policies, and conditions to achieve its Strategic Ambition. A company should also consider any resulting implications for its financial performance;
- Engagement Strategy: a company should disclose how it is engaging with its stakeholders to achieve its Strategic Ambition;
- Metrics & Targets: a company should identify and disclose the metrics and targets that it is using to drive and monitor progress towards its Strategic Ambition; and
- Governance: a company should disclose how it is embedding its Transition Plan within its governance structures and organisational arrangements to achieve its Strategic Ambition.
In addition to the Framework, the TCT has published guidance on 40 different sectors and has announced that it will consult on further guidance for Asset Managers, Asset Owners, Banks, Food & Beverage, Electric Utilities & Power Generators, Metals & Mining, and Oil & Gas in November 2023.
Who will these measures apply to?
The UK Government has announced that it intends to consult on the TPT’s Framework, and the Financial Conduct Authority (“FCA”) has similarly stated that it will consult on the introduction of guidance for listed companies. It is expected that any new requirements will come into force for accounting periods beginning after January 2025. Notwithstanding this, Sacha Sadan (Director of Environmental, Social and Governance at the FCA) has stated “we encourage listed companies and regulated firms to engage early with the Framework – and get started”.
Whilst these measures are primarily aimed at listed companies and regulated firms, as we pointed out last November, companies are now coming under increasing pressure to consider their environmental impact and ESG credentials. Whilst any such recommendations are likely to only apply to listed companies, entities who are considering listing or becoming regulated entities or who otherwise wish to demonstrate their ESG credentials may consider implementing similar measures.
The TPT Framework has made it clear that companies are coming under increasing pressure to think strategically about how they respond and contribute to the transition to a low emissions, climate-resilient future, and there is no doubt that companies will need to consider the implications of the Framework on their reporting and corporate governance obligations.
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