Board Priorities 2024: Transition plans
11 January 2024
The development, production and disclosure of climate transition plans has recently moved into the spotlight with a greater focus being given by policy makers around the world on this particular tool. Climate transition plans are action plans for firms that outline how a firm will contribute to and prepare for a rapid global transition towards a low emissions economy.
Transition plans will describe how an organisation will adapt its strategy and operations towards a trajectory that aligns with science-based recommendations. They should also explain the emission reduction targets the organisation has set, the measures it will take to reduce its emissions, how those measures will be financed, governance arrangements concerning the plan and the metrics for monitoring progress towards the targets.
Transition plans are currently generally encouraged and expected as part of TCFD disclosures. In some countries we are seeing a movement towards mandatory transition plans for certain entities. In the UK, it is likely that following the publication of the Transition Plan Taskforce Disclosure Framework, transition plans will become a requirement for listed issuers, asset managers and regulated asset owners (in the same way as we saw TCFD reporting being introduced). We expect this direction of travel will be initiated by the Financial Conduct Authority (who also acts as the competent authority for listed securities), with consultations expected in 2024.
For financial services firms and companies, this will be an important shift. Coupled with a new anti-greenwashing rule, and experience from reviewing climate-related financial disclosures, financial regulators and other stakeholders are likely to scrutinise what firms' transition plans look like, the commitment and targets that they have set themselves and, importantly, what actions are proposed or taken when milestones are not met. The Transition Plan Taskforce Disclosure Framework will therefore play a pivotal role in setting the market standard for the content and form of transition plans and their recent consultation on sector deep dives provide practical guidance for a range of different industry sectors.