The new Disclosure Framework and Implementation Guidance from the Transition Plan Taskforce will be welcomed by businesses which currently lack the guidance to develop robust transition plans.
It includes a definition of a high quality transition plan, three guiding principles of ambition, action and accountability, and a framework of recommended disclosures across five elements. We hosted an event for industry professionals on transition plans during COP27 – if you would like access to the slides please get in touch.
A transition plan is a time-bound action plan that organisations publish to provide stakeholders with details on its strategy to decarbonise and, importantly for board members, demonstrates how its business will remain viable in an uncertain climate future. A transition plan must clearly explain:
- How a company intends to overcome the challenges of contributing to a net zero economy
- How a rapidly changing climate could impact business operations if the world warms beyond 1.5 °C.
A transition plan shouldn’t be seen as a completely new reporting exercise. If you have started your TCFD report and set a science-aligned net zero target you are in a strong position and have a good foundation to build your transition plan from. Rather than writing from scratch, we see it as an exercise of finding the highlights from existing reporting and how they fit together, so you can avoid double efforts and focus on unique areas of the transition plan.
Understanding the gaps
There will be some areas of a transition plan that won’t naturally arise through your work on TCFD reporting or target planning and perhaps need additional focus to make sure they are aptly addressed – this is the value add of performing a gap analysis.
There are some common areas that have been identified by both CDP and in our work as points of weakness in a company’s existing sustainability reporting:
1. Lack of clarity on capital allocation to decarbonisation.
The guidance recognises that committed targets simply will not be reached without the appropriate finance behind them. CDP noted that only 45% of applicable organisations disclosed all details of their investment in low carbon R&D in their 2021 CDP disclosure.
2. Lack of consideration of a company’s impact on nature.
Just 5% of European companies disclosing through CDP have a target for reducing water withdrawals, and a best-practice forests commitment that includes zero-deforestation. A transition plan goes further than TCFD to encourage businesses to think about the climate risks and opportunities for themselves but also risks and opportunities for the natural environment around them. This is obviously signalling the fact that we also have TNFD (the taskforce for nature related financial disclosures) coming down the pipeline.
3. Avoidance of sensitivity analysis.
This is a common exercise within financial planning, however often missed out when reporting on climate risk management. By including it explicitly in their guidance, the TPT wants you to recognise that your transition plan is going to be built on a wide range of assumptions. Therefore, they want you to be comfortable with the implications for your strategy if central assumptions are not met and what the strategy is should this be the case.
Having a governance framework in place that clearly documents the decisions that were baked into central assumptions and a level of agility to pivot if necessary will be critical.
Structuring your report
When it comes to structuring your report, the guidance by the TPT gives the most detailed and logical outline of how the report could flow. The framework is grounded in three guiding principles – Ambition, Action and Accountability.
These oversee the five disclosure elements of transition plans which are meant to guide your structure into sections being foundation, implementation strategy, engagement strategy, metrics and targets and governance. These disclosure elements are further broken down into multiple sub disclosure elements.
- Foundation section: Your material objectives and priorities and how these fit into your business model. The subsequent sections will then continually refer back to these objectives and what you are doing to meet them.
- Implementation strategy section: Specific details of these time-bound actions, for example how will your products and services evolve to meet new climate opportunities and how financial planning supports your transition.
- Engagement strategy: This is now not only limited to supplier engagement, but you are also expected to comment on engagement with industry and engagement with government, public sector and civil society.
- Metrics and targets: These should be aligned with the metrics and targets you disclose in your TCFD reporting. However, this framework is going to push you harder to think about metrics beyond simply your greenhouse gas targets. It is also expecting to see specific operational and financial metrics and targets tied to your sustainability strategy.
- Governance: Rather than simply rehashing the governance section from your TCFD report, the TPT encourages you to apply a more forward-looking lens and disclose details on how incentives are aligned so that management and the board are motivated to take the future actions required. It also wants you to describe how future training is going to equip your teams and your board with the necessary skill sets.
We can help
Our transition plan gap analysis provides an actionable roadmap to give you confidence in what your strengths are and where you’re starting from, we also provide a prioritised list of recommendations so you know what areas of your strategy you should be looking to improve in the next few years.
It is only once we are comfortable with the company’s ambitions, strengths and weaknesses that we start drafting and designing the report. After the text has been finalised our in-house design team is able to bring the report to the point it is ready to be published and therefore can be used as a powerful communications tool to convey the right message to your external stakeholders.