The framework claims to set the “gold standard” for companies to contribute to the net zero transition while emphasising ambition, action, and accountability.
The UK Transition Plan Taskforce (TPT) launched its transition plan disclosure framework (the Framework) at the London Stock Exchange on 9 October 2023. The Framework encourages businesses to create transition plans for a low greenhouse gas (GHG) emissions economy. It also seeks to help companies and financial institutions create consistent and comparable disclosures on their climate transition plans.
While initially voluntary, the Framework is expected to become mandatory for certain entities in the UK through incorporation into regulatory frameworks.
What Is the TPT?
The TPT was unveiled in April 2022 at the COP 26 summit, established by HM Treasury to aid consistency in private sector climate transition plans (for more information, see this Latham blog post). The TPT comprises leading private and public sector figures, large UK corporations, and experts from academia, government, and civil society.
At the COP 27 Climate Summit in Egypt in November 2022, the TPT initiated a consultation process on the draft Framework and guidelines (for more information on the consultation, see this Latham blog post). In July 2023, the TPT issued an update outlining the feedback received during the consultation and has now moved to finalise the Framework ahead of COP 28 in Dubai.
What Does the Framework Require?
The Framework sets out five key elements of a “good practice” transition plan:
- Foundations: Share goals for a low GHG emissions, climate-resilient economy; explain how these goals align with benefits for stakeholders and the environment; and outline implications on the business model, value chain, and key dependencies.
- Implementation strategy: Describe specific measures within operations, products, and policies, and address the financial implications on the entity’s performance.
- Engagement strategy: Highlight engagement with various stakeholders and emphasise collaborative efforts toward goals.
- Metrics and targets: Share key metrics and targets for tracking progress.
- Governance: Explain how transition plans are integrated into governance and detail steps taken to ensure this is realised.
Each of these five categories includes subsections, and each subsection is accompanied by a set of disclosure guidelines. Additional guidance for preparers and users of transition plans has been provided in Appendix 1 of the Framework and in TPT’s Implementation Guidance published alongside the Framework.
Context of the Framework
The Framework was drafted in consideration of broader international standards, including new standards published by the International Sustainability Standards Board (ISSB) and the work of the Glasgow Financial Alliance for Net Zero (GFANZ). Representatives from both the ISSB and GFANZ are on the TPT committee. The Framework also builds on existing recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).
While produced with a focus on the UK, in their foreword to the new Framework, the co-chairs of the TPT Steering Group said the Framework “has global applicability by design”. Sue Lloyd, vice-chair of the ISSB, said the TPT’s Framework “provides a practical and useful complement” to the ISSB standards.
Incorporation in the UK
The UK government has revealed its intentions to initiate consultations in Q4 of this year regarding a separate potential mandating of TPT-aligned transition plan disclosures for the largest companies operating across various sectors of the economy.
Further, the Financial Conduct Authority (FCA) intends to mandate TPT-aligned transition plans for listed companies, stating in response to the Framework: “We are committed to drawing on the TPT Framework as we further develop our disclosure expectations for listed companies, asset managers and FCA-regulated asset owners”.
As the FCA outlined in Primary Market Bulletin 45, the FCA intends to consult on the UK-endorsed ISSB standards and the TPT Framework as a complementary package in the first half of 2024, to bring new requirements into force for accounting periods beginning on or after 1 January 2025.
The TPT is planning to initiate consultations on industry-specific guidance in November 2023, which it intends to publish in February 2024.
Latham & Watkins will continue to monitor developments on transition plan standards, frameworks, and guidance, both in the UK and internationally.