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Transition plans: What are they and why does your company need one?

By Helen Bradley
26th August 2022

At COP26 the Chancellor announced that the UK will move towards making it mandatory for companies to publish transition plans, stating that listed companies, asset managers and regulated asset owners will be required to do so as early as  2023 (1). In 2021, only one-third of companies disclosed to CDP that they were developing  low-carbon transition plans with  less than 1% reporting on all 24 key indicators (available in the CDP Climate Change questionnaire)  of a credible climate transition plan (2). But with the consultation having only closed at the end of July there is much still to be confirmed.

In response to the increasing number of questions from our clients about the upcoming requirements for UK business to publish transition plans, we sat down with our experts Laila Sharif, Governance Consultant and Ben Mayer, TCFD Lead to understand what the requirements are likely to look like and how we think reporting will impact and benefit business.

What is a transition plan in the context of the climate crisis?

A transition plan is a concise guide published by a company providing stakeholders with details on its strategy to decarbonise and 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

What kind of businesses do we expect will need to fulfil the mandate?

Although the government hasn’t explicitly defined the initial scope of the mandate in terms of company size and sector, we expect that  as with other climate regulations, the financial services sector, specifically investment banks and asset managers will be prioritised as they are key to driving the impact we so urgently need. We think it is likely to then expand to public companies, large private companies and finally SME’s. 

But what will this offer beyond a net zero road map, science-based targets and the TCFD Framework?

Net zero road maps don’t necessarily encourage disclosure on the action a business needs to take by 2030, whereas producing a transition plan will draw out the details of short-term steps required to achieve targets and disclose accountability for those steps.

Having a science-based target (SBT) alone will not help businesses manage all transition risks. For example, a law firm that has set an SBT is not protected from the reputational risk of continuing to generate revenue from fossil fuel intensive clients.

We think that best practice would see transition plans, SBT’s and climate-related financial disclosure  working together harmoniously with businesses, drawing connections between information produced across these forms of reporting. For example, mandatory climate-related financial disclosure and transition plans may become cross-referenceable within the same report as they look to serve the same issues. Currently this isn’t possible when TCFD disclosures and reporting against SBT’s are done separately.

And what about nature?

So far, this hasn’t been discussed within the consultation. However, our response to the UK government consultation has recommended that a company’s impact on nature and biodiversity is considered and included, utilising the Taskforce on Nature-Related Financial Disclosures (TNFD) Framework.

What is the Transition Plan Taskforce (TPT) ?

The TPT is a team of industry experts set up by the UK Government in April 2022 to respond to the mandate. The taskforce will apply its collective skills and experience to consider the implications of the mandate on business and lead the way in setting a global ‘gold standard’ for transition plans.

Key deliverables include agreeing the scope and associated metrics and developing templates bespoke to specific sectors to enable businesses to achieve this standard. Following an industry consultation that Carbon Intelligence responded to, it is expected that the TPT will respond to the mandate and report back by the end of 2022.

How will a business fulfil this mandate and when will it be required to do so?

Based on the current format for TCFD reporting and the transition plans we have already seen published, we expect that businesses will be advised to publish a transition plan alongside their annual reporting. As with TCFD disclosures, the nature of transition plans will be forward-focused in contrast to the backward-looking view of a company’s report and accounts. There are a lot of elements of a transition plan that can be found elsewhere in a company’s mandatory or voluntary reporting so effectively this will summarise a lot of existing information concisely, in one place.  

The government has stated that a credible plan will need to be science-based and should include both short-term and long-term objectives.

Reporting will be required from 2023.  We think it makes sense therefore that, as with the introduction of mandatory TCFD disclosures, the publishing of a company’s transition plans should align with its company year and its annual reporting timeframes. This would mean that transition plans will need to be disclosed within any full year annual report starting from April 2023. 

Contact us

As the UK’s leading science-based targets consultancy and TCFD expert we already help our clients with many of the elements that need to be considered to fulfil a transition plan and its purpose – it’s what our business model was built around.  We service these elements through our Six Dimensions (6D) Framework. If you would like to find out more or are looking for a partner to support with your net zero pathway please get in touch, info@carbon.ci.

 

(1) GOV.UK, November 2021, Fact Sheet: Net Zero-aligned Financial Centre,  https://www.gov.uk/government/publications/fact-sheet-net-zero-aligned-financial-centre/fact-sheet-net-zero-aligned-financial-centre, Accessed 26 Aug 2022.

(2) www.cdp.net, March 2022, Just a third of companies (4002/13,100+) that disclosed through CDP in 2021 have climate transition plans – CDP,  https://www.cdp.net/en/articles/companies/just-a-third-of-companies-4002-13-100-that-disclosed-through-cdp-in-2021-have-climate-transition-plans, Accessed 26 Aug. 2022.