HM Treasury’s Transition Plan Taskforce aims to influence international standard setting and make the UK the world’s first net zero-aligned financial centre.
On 25 April 2022, HM Treasury (HMT) announced the launch of the UK Transition Plan Taskforce (TPT) to help drive decarbonisation by ensuring that financial institutions and companies prepare plans to achieve net zero, as well as to support efforts to tackle greenwashing. This move is an important step connected with the UK’s development of the new Sustainability Disclosure Requirements (SDR) regime that Chancellor Rishi Sunak announced at his Mansion House speech in July 2021. HMT’s stated aim is to develop “a gold standard for climate transition plans” and for the UK to become the world’s first net zero-aligned financial centre.
An increasing number of companies are making public commitments to decarbonise their operations and reach net zero emissions, but transition plans announced so far are, according to the TPT, “varied in detail and quality”,[i] thereby limiting the ability of stakeholders to assess the credibility of such transition plans. Proposed rules announced by the Chancellor at COP26 would require large companies and certain financial sector firms to publish a transition plan from 2023. The TPT will, over the next two years, develop: (i) a sector-neutral framework for private sector transition plans; (ii) a sector-specific guidance for finance and other sectors; and (iii) recommendations regarding the preparation and use of transition plans. The TPT’s expectations are for such transition plans to be science-based and to help inform the UK’s SDR. (See Latham’s recent briefing for an outline of the SDR regime.)
The terms of reference for the TPT set out that credible and appropriately detailed organisational climate transition plans are essential for effective exercise of market discipline and to enable investors to hold investee company boards and management to account. The terms of reference for the TPT notes that the UK government expects the publication of company-level transition plans to become the norm across the UK economy. Currently, there is no commonly agreed standard or “template” for what a good quality transition plan looks like. However, the Task Force on Climate-related Financial Disclosures (TCFD) and other investor groups have developed guidance to establish best practice principles, and the TPT is expected to build on this effort (including coordinating with international efforts).
One of the TPT’s objectives is to establish robust standards to help tackle greenwashing. This goal will be achieved through one of the TPT’s stated outputs, which involves the TPT making recommendations to enhance the capacity of users to effectively use transition plans and enhance the capacity of preparers to produce “accurate, robust, and accountable transition plans and avoid greenwashing”.
UK’s International Leadership
A strong message conveyed in this announcement is the compatibility of the UK’s robust new standards with international standards.
The main focus of the TPT’s work will be on providing recommendations to the UK regulatory processes, but HMT stated that it also intends to provide a “leading example for the development of other jurisdictions’ national standards and for the development of international standards and norms”. The announcement states that the TPT will seek to maintain good working relationships with others (specifically mentioning the European Commission and the US Securities and Exchange Commission) that also have an interest in developing transition plan requirements.
Outputs and Timeline
The terms of reference for the TPT set out a list of nine outputs and a timeline for the focus of the TPT’s work in 2022 and 2023 (with exact delivery dates for the financial services and real-economy sectors for outputs 1 through 7 to be determined by the TPT).
|The TPT will make recommendations for a Transition Plan Disclosure Framework to enable transition plans that are science-based, standardised, and meaningful. Key elements (non-exhaustive) include:
|2. Templates and Guidance
The TPT will produce detailed sectoral Transition Plan Templates based on the framework above, together with guidance on metrics and targets. This will include regulatory templates and guidance for:
· Finance sub-sectors
· Key real economy sectors
|3. Guidance: Roles and Reporting
|The TPT will produce guidance on the role of governance and assurance, third-party verification, and the implications of organisitional transition plans for reporting.
|4. Input for Upcoming UK Strategy
|The TPT will deliver input and cross-over to the UK’s net zero transition pathway review for the financial sector. This will be reflected in a new strategy expected to be published in 2022.
|5. Recommendations: Use and Assessment of Transition Plans
|The TPT will make recommendations on how to simplify the assessment, comparison, and interpretation of transition plans by users.
|6. Recommendations: Greenwashing
|The TPT will make recommendations to enhance the capacity of users to effectively use transition plans. Recommendations will also be made to enhance the capacity of preparers to produce accurate, robust, and accountable transition plans and avoid greenwashing.
|The TPT will produce a pathway for future work on transition plans for consultation.
|8. International Relationships and Dialogues
|The TPT will build relationships and establish dialogues with the organisations overseeing relevant international standards (ISSB, TCFD, the International Platform on Sustainable Finance, IOSCO, UNSG High-Level Expert Group, BIS, the G20 Sustainable Finance Working Group, and GFANZ) and national standards, along with “any others” that show an interest in developing transition plan requirements.
|The TPT will establish a sandbox for users and preparers to pilot and evaluate transition plan templates, recommendations, and metrics.
Companies should expect publication of the TPT’s recommendations on outputs 1 through 7 by the end of the 2022 fiscal year.
The TPT’s two-year mandate will end on 29 February 2024.
Latham & Watkins will continue to monitor developments in this area.