Where is your business in regards to its plans to be more sustainable?
Where is your business in regards to its plans to be more sustainable?
The Transition Plan Taskforce (TPT) was announced by the UK government in 2021 and launched by the Treasury in April 2022. The TPT published a Disclosure Framework for corporate climate transition plans in October 2023.
The Disclosure Framework could provide a basis for companies to set out effective transition plans as part of their business reporting. According to SaveMoneyCutCarbon (SMCC), the framework aims to support the creation of consistent, comparable company reports, and reduce the level of complexity faced by firms disclosing climate-related information.
What does this mean for UK businesses and what additional stresses will they be under?
Comprehensive transition plans could be an important consideration if the UK is to move to a low-carbon economy, with the UK committed to reducing carbon emissions by 68% by 2030.
The Financial Conduct Authority intends to consult this year (2024) on rules and guidance for listed companies to disclose in line with the UK-endorsed International Sustainability Standards Board (ISSB) standards and the TPT Framework.
Climate-risk management
Plausible plans could enhance transparency and accountability for both companies and financial institutions in the quest for net-zero emissions, while they can give potential investors information on climate-risk management. Clear guidance from the TPT could also help companies that are struggling to develop comprehensive transition plans to compete with those that already have robust strategies in place. Transition plans could take into account national commitments and international agreements on climate change, as well as commitments such as Nationally Determined Contributions submitted under the Paris Agreement.
According to SMCC, full carbon plan could deliver these benefits:
Help shape business strategy, drive innovation and increase competitive edge
Stronger reputation – companies that want to take climate action seriously are increasingly expected to set science-based targets to demonstrate responsibility
Cost savings from reductions in energy and water consumption
Increased investor confidence – financial institutions are increasingly factoring in carbon reductions in line with climate science
Attract and retain staff – many potential employees seek to identify companies who have made a commitment to being more sustainable
Attract and retain customers - consumers are looking for companies with a focus on being more sustainable
Manage future risks – setting targets could boost resilience to future emissions related regulations.
Under FCA listing rules, premium-listed and standard-listed companies need to make disclosures under the Task Force on Climate-related Financial Disclosures framework.
Next steps on climate risk
Former Governor of the Bank of England, Mark Carney, has emphasised the importance of accountability mechanisms for transition plans. He said:
“As an increasing number of firms disclose their assessment of climate risks, investors should have the opportunity to opine on the quality of these disclosures and so called ‘transition plans’. As with ‘say on pay’ there are growing calls for investors to have a ‘say on transition’: a vote on the adequacy of a company’s preparedness for the transition to a net-zero world. This mechanism would embed the critical link between responsibility and accountability.”
And as the G7 have pledged to follow the UK in mandating climate risk reporting from large businesses, the transition plan mandate may well go global.
Why does your organisation need a carbon roadmap?
The UK government has launched its Net Zero Strategy, (1) with the target of balancing out carbon emissions by 2050 so that they are effectively zero. It has called on all businesses and organisations to play their part in ensuring that global warming is limited to a manageable 1.5 degrees. (© Crown 2024 copyright Defra & BEIS via naei.beis.gov.uk, licenced under the Open Government Licence (OGL).
This means publishing detailed plans, guided by the TPT and FCA guidelines on how the UK Government will progress to a low-carbon future. Companies now need to develop integrated strategies that focus on direct and indirect carbon emissions, while delivering operational cost savings. They also need to prepare for physical impacts of climate change.
Effective and accurate measurement, using the right data could be key to decision making that may prepare the business for long-term viability.
Sources:
1 https://www.gov.uk/government/publications/net-zero-strategy/executive-summary