getting ready
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Start early: It may be a while before transition plan disclosures become mandatory for large organisations in the UK and elsewhere. If and when such mandatory measures are introduced, businesses will face a significant workload to ensure compliance with new requirements. To gain a competitive advantage, businesses should consider preparing now while the guidance is optional. In fact, regulators like the FRC are already encouraging companies to review the TPT’s guidance. Suggested early actions for businesses include establishing robust processes relating to data collection, governance, internal verification and third-party assurance for the process of developing transition plans, and updating their plans as market and stakeholder expectations change. Starting now might mean a business is better placed to take advantage of the opportunities and manage the risks that the transition represents. |
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Ensure a ‘just transition’: To facilitate a ‘just transition’, businesses should look to minimise adverse impacts for stakeholders, society and the natural environment by setting out clear strategic ambitions and priorities for transitioning towards a low-carbon and climate-resilient economy. The TPT recommends taking a ‘strategic and rounded approach’ across three inter-related channels: (i) decarbonisation; (ii) responding to climate risks and opportunities; and (iii) contributing to the economy-wide transition. As noted in the Framework, taking a strategic and rounded approach may help an entity “to protect and enhance [its] long term value”. Boards will need to consider how best to align this approach with their duties under s.172 of the Companies Act 2006, in light of the interdependent complexities involved. |
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Draw on experience: Businesses may already be familiar with the practice of reporting in line with the ‘four pillars’ approach used in the TCFD Recommendations and Recommended Disclosures. This experience can help guide a business’ approach to making transition plan disclosures. For example, material information about a business’ transition plan in its general-purpose financial reports can be structured according to governance, strategy, risk management, and metrics & targets pillars. This structure is also used by the ISSB, which is expected to supersede TCFD as the global baseline for climate-related reporting, so this approach offers some future-proofing. |
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Be clear about the plan (and its limitations): Transition plans and their expected impacts constitute forward-looking statements, which are by definition aspirational, so businesses should frame their statements accordingly. This may also help mitigate the risk of accusations of greenwashing and misstatement. The TPT also recommends that disclosures be drawn up into a standalone transition plan report. The report should be a living document which is updated when there are significant changes to the plan, and in any event at least every three years, in line with scientific developments and changing market expectations. |
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Collaboration is key: Businesses should consider early engagement with the wider industry, those in their supply chains, the public sector and the third sector (whilst being mindful of competition law requirements). An effective transition needs to be a collective effort, and sharing concerns, expertise and experience to address common challenges can help support a business’ strategic ambition, objectives, priorities and interim milestones. |
Click here to read more about how Slaughter and May advised the Secretariat to UK's Transition Plan Taskforce in relation to the TPT's Transition Plan Disclosure Framework and Sector Guidance.
