Transition Plan Taskforce publishes final report on next steps for Transition Plans
13 November 2024
13 November 2024
On 31 October 2024, the Transition Plan Taskforce (TPT) concluded its work and released its Final Report on the progress it has achieved since it was convened at the UN COP26 conference in 2022 and how it considers Transition Plans (TPs) should develop. For background information on the TPT, the Disclosure Framework and Implementation Guidance it developed to standardise TPs and to help companies and financial institutions develop their TPs, see Transition Plan Taskforce issues Disclosure Framework and consults on sector guidance.
The International Financial Reporting Standards (IFRS) Foundation assumed responsibility for the TPT's disclosure-specific materials in June 2024 and will integrate these materials into its training materials. It will also consider using TPT materials to develop guidance on its climate reporting standard (IFRS S2), which sets the global baseline for climate-related financial disclosures (see Disclosures required under the IFRS's Sustainability Disclosure Standards (ISSB S1 and S2)). The TPT's materials are now hosted on the IFRS's Sustainability Knowledge Hub.
Also in October 2024, the Transition Finance Market Review (TFMR) published a report providing recommendations to scale transition finance effectively. Key findings of that report include that despite significant growth in green finance, there remains a substantial gap of over US $7 trillion in the funding required to support the global transition. The TFMR assesses that the UK, as a major financial centre, has the potential to lead in transition finance to support both domestic and global decarbonisation efforts (see Ashurst Governance & Compliance Update – Issue 58).
The report makes several recommendations including defining Transition Finance, suggesting a Transition Finance Classification System (TFCS) and Guidelines for Credible Transition Finance, mandatory TP disclosures for large companies and financial institutions, and establishing a Transition Finance Council, housed within the City of London Corporation, to oversee the implementation of the recommendations.
The adoption by the EU of the Corporate Sustainability Due Diligence Directive (CS3D) in April 2024 requires in-scope companies and groups to adopt and implement a TP (see our briefing). This requirement of the CS3D will both mandate TPs for in-scope EU and non-EU companies and groups and likely create a demand for TPs, or at least certain information in TPs, for companies that are part of the chain of activities of in-scope companies.
The adoption of the International Sustainability Standards Board financial disclosure requirements in other jurisdictions (such as Australia – see our briefing) may also lead to mandatory requirements for companies to produce TPs.
The Final Report states that the adoption of TPs is accelerating globally. The CDP (previously known as the Climate Disclosure Project) reports that in 2023, over 5,900 companies said they had a 1.5°C-aligned TP. This represents a 44% increase from the position in 2022. A further 8,600 companies have indicated they intend to develop a TP in the next two years. TP preparation is anticipated to rise as plans are increasingly expected by market counterparties and by regulatory authorities.
Larger UK companies are leading the way, with 60% of FTSE 100 companies including plans to transition to a low carbon economy in their disclosures for FY 2023 and over half of these disclosures were presented as standalone reports.
In parallel to this increasing uptake of TPs by preparers, financial institutions are increasingly using TPs to allocate transition finance, with 68% of investors considering a company's TP as important when making investment decisions.
The TPT Final Report also notes that requirements, rules or guidelines concerning TPs are in place in multiple jurisdictions across the world and several jurisdictions including Canada, India South Africa and Australia are currently considering or developing such requirements. In particular, the Australian government has committed to develop best practice guidance for the disclosure of corporate TPs by the end of 2025.
The TPT's final report outlines four key areas to ensure that TPs are widely adopted across the UK and global economy:
The previous Conservative UK government committed to consult in Q2 2024 on how large UK companies can disclose their TPs. Also, as part of its consultation on implementing UK-endorsed IFRS standards, the Financial Conduct Authority (FCA) plans to consult on strengthening its expectations for TP disclosures by listed companies with reference to the TPT's Disclosure Framework (see Government publishes an update on UK Sustainability Disclosure Requirements (SDR) and Sustainability Reporting Standards (SRS)).
The Labour Government's 2024 Manifesto committed to make the UK the sustainable finance capital of the world and to mandate development of TPs aligned with the Paris Agreement 1.5 degrees goal by UK-regulated financial institutions and FTSE 100 companies. Further information including a consultation is still awaited.
The TPT's Final Report states that the UK is also set to join the recently launched International Transition Plan Network, which has been set up to support continued global momentum for transition planning and to enable international norms and national action.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
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