A climate transition plan is a timebound action plan that clearly outlines how a company is going to pivot its existing assets, operations and business model towards a trajectory aligned to science-based targets. This should be part of its corporate strategy, specifying the targets, actions or resources for its transition towards a lower-carbon economy.
The TPT has released its Disclosure Framework (DF) with the intention of helping private sector companies develop, disclose and deliver ‘gold standard’ climate transition plans. But what does this actually mean for companies and their stakeholders?
The DF’s alignment to the ‘soup’
The overarching goal of the framework is to ensure that companies are disclosing crucial information about their transition plan, such as the risks and opportunities, in a comparable and consistent format. It is based around three guiding principles of Ambition, Action and Accountability, and is aligned with and builds on the IFRS S2 ‘Climate-related Disclosures’ standard issued by the International Sustainability Standards Board (ISSB).
What should reporters do?
The TPT has organised five disclosure elements around the three principles of Ambition, Action and Accountability:
- Ambition: setting out the understanding that your company does not operate in a vacuum. The TPT suggests companies take a “strategic and rounded approach”, describing their short-term plans to decarbonise what is within their operational control, the implications on the business model and value chain, and the key assumptions and external factors on which the plan depends.
- Implementation strategy: What actions will you take to achieve your goal in the short, medium and long term? What is your resourcing plan? What impact will these decisions have on finances? What key assumptions and external factors does the implementation strategy rely on?
- Engagement strategy: How are you engaging with stakeholders such as your value chain, industry peers, government, public sector, communities and civil society in order to achieve your ambition?
- Metrics and targets: What does success look like? What financial and GHG metrics and targets have you established? How will these drive and monitor progress towards your net-zero goals?
- Governance: How are you getting leadership buy-in? The DF suggests best practice comes when a company embeds its transition plan within the way the its teams are set up as well as governance structure.
With this framework, it is important for companies to keep in mind that this is not reporting for reporting’s sake. This is about improving decision making within the company that's actually making the transition plan, as well as providing transparency to investors and capital markets around what went into that decision-making process.
Frequently asked questions
Q: Do I need a separate report for my transition plan?
A: No, but it is recommended. The TPT advises companies to incorporate transition plan details into their general-purpose financial reports in addition to publishing a standalone transition plan report.
Q: What are the benefits of a standalone transition plan?
A: A standalone transition plan can enhance communication of a reporter’s strategy, help external audiences understand the complexities of the transition, and facilitate effective analysis and comparison of plans across peers. The TPT suggests using cross-referencing to general-purpose financial reports, updating the plan periodically, and optionally including extra information that might not be crucial for a primary financial report.
Q: What is the TPT’s advice for integrating transition plans into financial reports?
A: The TPT recommends that companies integrate material information about their transition plan, including annual progress updates, within broader sustainability-related disclosures. The disclosure should align with specific sections of the IFRS S2 standard. For example, information about transition planning governance should be part of overall governance disclosure, and transition strategy details should be integrated into the entity's climate strategy disclosure. Similarly, transition-related risks, opportunities, metrics and targets should be included in relevant sections of IFRS S2.
Q: How frequently should I update a standalone report?
A: The TPT recommends updating your standalone transition plan every three years, or more frequently if there are significant changes to the plan.
The next steps
This November the TPT is planning to release sector-specific guidance across 40 distinct sectors. Although the framework is new and voluntary, the UK Government has committed to moving towards making the disclosure of transition plans mandatory; so it's likely that this framework, which acts as support for companies, could ultimately lead to a regulation in the future.