Transition Plan Taskforce: Disclosure Framework launched
Transition plans are seen as a critical component of a firm’s business strategy, helping to explain to their customers, shareholders and investors how they will adapt and grow as the global economy transitions to net zero. In light of this, and following consultation in 2022, on 9 October 2023, the Transition Plan Taskforce (TPT) launched its Disclosure Framework which provides a set of good practice recommendations to help companies make high quality, consistent and comparable transition plan disclosures.
The TPT was launched by HM Treasury in March 2022 to develop the gold standard for private sector climate transition plans and in the 2023 Green Finance Strategy, the Government committed to consult on introducing requirements for the UK’s largest companies to disclose their transition plans if they have them.
The TPT Disclosure Framework has been designed to align with the transition planning guidance developed by the Glasgow Financial Alliance for Net Zero (GFANZ), and to be consistent with, and build on, the reporting standards developed by the International Sustainability Standards Board (ISSB). It sets out good practice for robust and credible transition plan disclosures and, to drive good practice, it applies three guiding principles of Ambition, Action and Accountability. Under these guiding principles, the TPT Disclosure Framework is organised across five Elements as follows:
- Foundations: An entity should disclose the Strategic Ambition of its transition plan. This should comprise the entity's objectives and priorities for responding and contributing to the transition towards a low-GHG emissions, climate-resilient economy, and set out whether and how the entity is pursuing these objectives and priorities in a manner that captures opportunities, avoids adverse impacts for stakeholders and society, and safeguards the natural environment. Under this element, an entity should also disclose the high-level implications that this transition plan will have on its business model and value chain, as well as the key assumptions and external factors on which the plan depends.
- Implementation Strategy: An entity should disclose the actions it is taking within its business operations, products and services, and policies and conditions to achieve its Strategic Ambition, as well as the resulting implications for its financial position, financial performance, and cash flows.
- Engagement Strategy: An entity should disclose in its transition plan how it is engaging with its value chain, industry peers, government, public sector, communities, and civil society in order to achieve its Strategic Ambition.
- Metrics & Targets: An entity should disclose the metrics and targes that it is using to drive and monitor progress towards its Strategic Ambition.
- Governance: An entity shall disclose how it is embedding its transition plan within its governance structures and organisational arrangements in order to achieve the Strategic Ambition of its transition plan.
The TPT’s Disclosure Framework then breaks these five Elements down into 19 Sub-Elements, each of which is supported by a series of Disclosure Recommendations.
As noted above, the TPT’s Disclosure Recommendations are designed to be consistent with, and build on, the wider climate-related disclosure requirements in the ISSB Standards. The TPT notes that IFRS S2 includes several provisions that are relevant to transition planning and while IFRS S2 does not require an entity to have a transition plan, it does require disclosure of any transition plan the entity has developed. As a result, entities are encouraged not to see the TPT Disclosure Recommendations as separable from or parallel to climate-related financial disclosures prepared in accordance with the ISSB’s Standards, but to see the TPT Disclosure Framework as providing additional recommendations on what a good practice climate transition plan should cover. The TPT considers that its Recommendations can be used as guidance to help entities report more effectively on the transition plan-related aspects of the ISSB Standards as part of wider sustainability-related reporting aligned with these frameworks and standards.
In addition to including transition plan disclosures as part of its annual financial reports, the TPT also regards it as good practice for an entity periodically to publish its transition plan in a single standalone document that sits alongside its annual financial reports. The TPT recommends that entities update their standalone transition plan periodically, either when there are significant changes to the plan or, at the latest, every three years. If an entity prepares a long-form TCFD or sustainability report outside of its annual financial reporting, the TPT also recommends that the transition plan should be clearly separable (e.g. as an appendix or separate document)
The Financial Conduct Authority (FCA) has welcomed publication of the TPT Disclosure Framework. In an announcement on 9 October 2023, it states that it is committed to drawing on the TPT Disclosure Framework as it further develops its disclosure expectations for listed companies, asset managers and FCA-regulated asset owners. It notes that in Primary Market Bulletin 45, published in August 2023, the FCA set out its intention 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 as a complementary package. It encourages listed companies and regulated firms to “engage early with the Framework - and get started”.
(TPT, Disclosure Framework, 09.10.2023)
(TPT, Summary of the TPT Recommendations, 09.10.2023)
