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How to Choose a Framework Among All ESG Standards
In this article, we’ll give a brief overview of ESG standards, why they are important, and how your company can pick the ESG framework most suited towards your individual goals.
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What is the UK Transition Plan Taskforce (TPT)?
Regulators around the world are increasingly recognising the importance of climate disclosure in the context of the private sector. Public disclosure of greenhouse gas emissions and the risks and opportunities linked to climate change is fast becoming the norm. A natural extension of this is the requirement that companies create and share an accompanying transition plan that outlines how the organisation will work towards achieving decarbonisation targets.
Globally, there are a number of countries that are already implementing transition plan requirements - or soon will be. Under current or upcoming regulations, companies in the UK, EU, and the US for example must produce transition plans.
To help companies create and disclose effective transition plans in the United Kingdom, the UK Government launched the Transition Plan Taskforce to develop a framework. The final version of the framework was published on the 9th of October 2023. It will help companies subject to mandatory disclosure requirements to develop and roll out climate transition plans.
👉 In this article we’ll explore what the TPT framework is, how it will operate, and what companies should do to prepare for its implementation.
What is the UK Transition Plan Taskforce?
The UK Government recognises the crucial role that financial institutions and corporations play in achieving the country's ambitious net-zero targets, and within the private sector net zero and transition plans are quickly becoming standard. However, these private sector transition plans vary greatly in terms of detail and quality, which restricts their useability and prevents stakeholders from accurately contrasting and comparing their credibility.
This is where the Transition Plan Taskforce comes in. The UK Government created it in response to the growing need for standardised, credible climate transition plans in the private sector and tasked it with creating a framework to help companies deliver “gold standard” disclosures.
Context and creation of the TPT
The history of the TPT is rooted in the broader landscape of the UK’s environmental and sustainability policies. Let’s take a closer look at how the UK Government moved from inception of the TPT to the recent release of their finalised framework:
- In October 2021, the UK Government introduced the Greening Finance Roadmap, laying the groundwork for aligning the financial sector with environmental sustainability. This roadmap set out the government’s ambition to “make the UK the best place in the world for green and sustainable investment” and committed to action to help align UK financial flows with a net zero economy.
- In November 2021, at the COP26 conference, the Chancellor of the Exchequer (now Prime Minister Rishi Sunak) announced the formation of the Transition Plan Taskforce (TPT) and committed to moving forward with making the publication of transition plans mandatory. This announcement was a strategic move to position the UK as a leader in climate finance and align its financial systems with the broader goal of achieving net-zero emissions by 2050. 💡 The establishment of the TPT is part of the UK's strategy to become the world’s first net-zero-aligned financial centre.
- In December 2021, the UK Financial Conduct Authority (FCA) announced climate-related disclosure requirements in alignment with the Task Force on Climate-Related Financial Disclosures (TCFD). According to the FCA’s new rules listed issuers must provide disclosures on a ‘comply or explain’ basis. Expected disclosures include transition plans. FCA-regulated asset managers and owners are also required to provide certain disclosures.
- The FCA also encouraged listed companies, asset managers and owners operating in, or headquartered in a country with net zero ambitions (such as the UK) to strongly consider the commitment to a decarbonised economy when disclosing transition plans.
- In March 2023, the UK Government, through its 2023 Green Finance Strategy, committed to holding discussions on the possibility of requiring large companies within the UK to disclose transition plans. This would complement the FCA’s existing requirements by targeting listed and large private companies.
- In August 2023, the FCA revealed that it would consult on the possibility of requiring listed companies to disclose their transition plans. Any such disclosure requirements would align with the TPT framework as well as the UK-backed International Sustainability Standards Board Standards (ISSB standards).
- In October 2023, the TPT published the finalised version of its Disclosure Framework, along with supporting guidance. The intention is that this will help companies to create and deliver “gold standard” climate transition plans.
👉 Discover more about the UK’s Green Finance Strategy in our article.
Purpose and goals of the TPT
The primary goal of the TPT is to help companies to develop comprehensive and effective transition plans. These plans are essential tools for businesses to outline their strategies for reducing greenhouse gas emissions and managing climate-related risks and opportunities. By providing a standardised framework, the TPT aims to reduce the complexity of the task and to make the information provided more clear and comparable for stakeholders.
The TPT's finalised framework focuses on guiding companies to detail their decarbonisation pathways, encompassing scope 1, 2, and 3 emissions. It emphasises the importance of setting quantifiable targets, implementing robust governance structures, and ensuring regular reporting and accountability.
The TPT guidelines are also designed to be in alignment with global standards, such as those set by the International Sustainability Standards Board (ISSB), helping to reduce the reporting burden on companies and to create a global baseline for transition plans.
👉 Understand the difference between Scope 1, 2, and 3 emissions in our blog.
The TPT was created to meet a critical need in the UK's climate change strategy. By standardising the approach to transition planning, the taskforce plays an important role in ensuring that the UK’s financial and corporate sectors are fully aligned with the country's net-zero ambitions.
Who is required to follow the TPT’s Disclosure Framework?
As it stands the TPT Disclosure Framework is voluntary. It helps companies to implement best practices when it comes to transition plan disclosures, reducing the complexity of providing climate-related information. Therefore, it’s recommended that companies implement the recommendations on a voluntary basis.
The voluntary nature of the TPT Disclosure Framework may also change in the not-so-distant future. The FCA for example already requires UK-listed issuers to make transition plan disclosures for the accounting period from January 2022. This is currently on a comply or explain basis but will become mandatory for accounting periods after January 2025. And although issuers are not obligated to follow the TPT Framework, it looks likely that in the future the FCA will align disclosure requirements with the Framework and ISSB Standards.
The FCA is also set to start discussions on expanding the scope of mandatory reporting to encompass listed companies. Therefore, companies that start to align with the TPT Disclosure Framework now will be better prepared for any future changes that are coming down the pipeline.
What is the TPT’s final Disclosure Framework?
In October 2023 the TPT final Disclosure Framework was released setting out a framework for the disclosure of climate transition plans by private sector organisations. This framework is designed to provide a structured approach for companies to develop, articulate, and implement their climate transition plans.
The purpose of the TPT's framework is summed up in three fundamental principles: ambition, action, and accountability:
- Ambition - At its core, the framework encourages companies to set bold and meaningful targets that contribute to the broader economic shift towards net-zero emissions. These targets are expected to encompass not only direct emissions (scope 1 and 2) but also indirect emissions (scope 3), ensuring a more comprehensive approach to decarbonisation. The ambition principle also pushes organisations to prioritise substantial CO2 emissions reduction over merely offsetting emissions through carbon credits.
- Action - The framework mandates firms to translate their ambitions into concrete actions. This involves detailing short-term, medium-term, and long-term plans with clear resource allocation, financial planning, and operational strategies. The action component requires firms to set out how they intend to achieve their set targets, including any underlying assumptions, dependencies, or potential uncertainties.
- Accountability - Underpinning the framework is the principle of accountability. It necessitates board-level oversight and robust governance structures to ensure the transition plans are not only developed but are also actively pursued. Companies are required to establish quantifiable metrics and targets with clear deadlines and to integrate these into their annual financial reporting. This level of transparency and accountability is crucial for stakeholders to monitor progress and hold organisations accountable for their environmental commitments.
Key components of the Disclosure Framework
In addition to the three fundamental principles. The TPT's Disclosure Framework is structured around five key categories, each with specific sub-elements:
- Foundation - This category addresses the strategic ambition of the company, its business model, and the value chain implications. It involves assessing the business model for its alignment with the transition plan, considering key milestones, resources needed, and potential impacts on products or services.
- Implementation strategy - Here, firms need to detail their planned activities and strategies to achieve their transition goals. This includes changes in operations, resource allocations, and handling of greenhouse gas or carbon-intensive assets. Firms should also disclose their internal policies that align with their strategic ambitions.
- Engagement strategy - This involves disclosing activities aimed at engaging with stakeholders across the value chain. The focus is on fostering wider industry collaboration and knowledge sharing to collectively address the challenges of transitioning to a low-carbon economy.
- Metrics and targets - Firms must disclose specific metrics and targets used to track progress against their strategic ambitions. This includes both financial and greenhouse gas (GHG) metrics, and, where applicable, the use of carbon credits.
- Governance - The final category requires firms to disclose governance arrangements supporting their transition plans. This encompasses board oversight, senior management responsibilities, policies and procedures to foster the right culture, as well as necessary skills and training to achieve strategic ambitions.
💡 The TPT's Disclosure Framework is designed to be a comprehensive tool, guiding companies in developing and disclosing robust and credible transition plans. This framework not only helps companies articulate their climate strategies but also ensures that these strategies are integrated into their core business operations and governance structures.
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Does the TPT Disclosure Framework align with other standards?
The Transition Plan Taskforce helps to align UK climate transition planning with global regulatory standards, particularly those established by the International Sustainability Standards Board (ISSB). A key aspect of this alignment is the TPT's integration with the ISSB’s IFRS S2 standard, which sets the global benchmark for climate-related disclosures.
Alignment with ISSB Standards
The ISSB's IFRS S2 standard focuses on providing a globally consistent framework for climate-related financial disclosures. The TPT’s framework complements this standard by offering detailed guidance on how entities can effectively disclose their transition plan. This alignment ensures that organisations following the TPT guidelines are also in line with international best practices as laid out by the ISSB.
👉 To learn more about the ISSB and its standards why not check out our article.
By aligning with IFRS S2, the TPT framework helps UK organisations integrate their climate-related disclosures into broader financial reporting, ensuring that these disclosures are consistent with international standards. This integration is vital for creating transparency and comparability in how companies around the world report their progress towards decarbonisation.
Influence on UK and global regulations
Within the UK, the TPT framework is set to significantly influence upcoming regulations. The Financial Conduct Authority (FCA), for example, has indicated intentions to update its climate-related disclosure rules to incorporate the TPT's guidelines. This move signifies a shift towards more detailed and standardised reporting requirements for UK companies, ensuring that their disclosures align with both national objectives and international norms.
💡 Globally, the TPT's work is contributing to the creation of a baseline when it comes to sustainability disclosure practices. By setting a high standard for transition plan reporting, the TPT is influencing how other countries and regulatory bodies approach the issue of climate-related disclosures.
How can companies align with the TPT’s Disclosure Framework?
As we’ve already touched on, the TPT Disclosure Framework is voluntary only, and as it stands only listed issuers, alongside asset managers and owners falling under the scope of the UK FCA climate-related disclosure rules are expected to disclose their transition plans.
However, the FCA already has signalled its intention to consider expanding the scope of its regulations to include listed companies as well. Additionally, the FCA will also likely strengthen its requirements for transition plan disclosures, aligning closely with the TPT Disclosure Framework. This is why it’s prudent for companies to get ahead of the game by familiarising themselves with the TPT Framework now.
So how can companies align with the TPT’s gold standard on transition plan disclosures?
- Understand the framework - Companies should first gain a thorough understanding of the TPT framework. This involves understanding its key principles (ambition, action, and accountability), as well as the details of its five disclosure categories.
- Develop a transition plan - Developing a comprehensive transition plan involves setting ambitious yet achievable emissions reduction targets, formulating actionable plans with clear timelines, and establishing effective governance structures for oversight and accountability.
- Integrate with the business strategy - The transition plan should be seamlessly integrated into the organisation’s overall business strategy, ensuring that climate action is a core business objective.
- Stakeholder engagement and reporting - Effective communication of the transition plan to stakeholders is essential. Regular monitoring and reporting against set targets should be part of the organisation's annual reporting processes to maintain transparency and accountability.
- Begin early - Aligning internally on a climate-related strategy can take time, as can developing and implementing the finalised transition plan. This is why it’s important for companies to start early.
- Make use of the TPT Framework and resources - The TPT Framework and resources don’t just ensure that companies align with the relevant regulations, they’re also useful for developing the transition plan. They effectively provide a blueprint for companies to follow in their quest to develop a comprehensive climate strategy.
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Round up
The TPT framework, though voluntary, provides a best practice template in climate-related transition plan disclosures. With the Financial Conduct Authority (FCA) already requiring transition plan disclosures from UK-listed issuers and considering broader mandates, familiarisation with the TPT framework is a proactive step for all organisations.
Companies should take note: aligning with the TPT framework prepares them for upcoming regulatory changes and positions them effectively in a sustainability-focused corporate world. In a rapidly changing environment, where sustainability is gaining prominence, the TPT framework offers a practical tool for companies to demonstrate their commitment to environmental responsibility and adapt to the evolving demands of climate strategy and reporting.
What about Greenly?
At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Why not request a free demo with one of our experts - no obligation or commitment required.
If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here.
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