Understanding a Product Carbon Footprint (PCF)
In this article, we'll explore what a PCF is, its relevance in today's business environment, and the step-by-step process of conducting one.
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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 organization will work towards achieving decarbonization 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.
The UK Government recognizes 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 standardized, credible climate transition plans in the private sector and tasked it with creating a framework to help companies deliver “gold standard” disclosures.
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 the inception of the TPT to the recent release of their finalised framework:
👉 Discover more about the UK’s Green Finance Strategy in our article.
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 standardized 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 finalized framework focuses on guiding companies to detail their decarbonization pathways, encompassing scope 1, 2, and 3 emissions. It emphasizes 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 standardizing 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.
As it stands the TPT Disclosure Framework is voluntary. It helps companies 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.
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:
In addition to the three fundamental principles. The TPT's Disclosure Framework is structured around five key categories, each with specific sub-elements:
💡 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.
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.
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 organizations 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 organizations 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 decarbonization.
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 standardized 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.
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 signaled 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?
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 organizations.
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.
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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.