TPT’s proposed best practice includes four elements for effective disclosure of transition plans, aligned with GFANZ’s and the ISSB’s disclosure recommendations.
On 8 November 2022, the UK’s Transition Plan Taskforce (TPT) launched a draft of its proposed Transition Plan Disclosure Framework (the TPT Framework), alongside the associated Implementation Guidance (the TPT Guidance) and a Technical Annex. The TPT Framework and Guidance are intended to provide a “gold-standard” set of guidance for companies in the UK developing net zero transition plans.
What Is the TPT?
The TPT is a government mandated body, first announced at COP 26 in Glasgow in November 2021 and formally launched in April 2022. The TPT comprises individuals from industry, academia, and regulatory agencies working to develop a standard for transition plans that encourages best practice amongst UK entities. The TPT Framework and Guidance are particularly relevant for UK listed entities and financial institutions that are required to publish transition plans (or explain why they have not been able to publish such a plan) from 2023.
The TPT Framework’s Aims and Recommendations
The TPT Framework is intended to assist entities that are required to disclose credible, useful, and consistent transition plans. The TPT Framework builds on existing recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) to disclose transition plans and proposed recommendations in emerging standards such as those of the International Sustainability Standards Board (ISSB). The TPT Framework states that entities should approach materiality in “the same way as they do in their general purpose financial reporting”, such that an issue is considered material to the extent that, “if it were omitted, misstated, or obscured, it could reasonably be expected to influence decisions that the primary users of in terms of general purpose financial reporting make on the basis of that reporting”.
The TPT Framework is based on three guiding principles — Action, Ambition, and Accountability — that the TPT views as important to “guide a credible transition plan”. In line with the guiding principles, the TPT Framework, if adopted, would direct entities to focus on a “rapid and orderly” transition plan, while setting concrete actions that emphasise the short term and implementing clear and robust governance mechanisms to provide oversight of the transition plan.
The TPT Framework would recommend that a transition plan in line with good practice should cover four key elements:
- an entity’s high-level ambitions to mitigate, manage, and respond to the changing climate and to leverage opportunities of the transition to a low greenhouse gas and climate resilient economy, including greenhouse gas reduction targets;
- short, medium, and long-term actions the entity plans to take to achieve its strategic ambition, alongside details on how it will finance those steps;
- governance and accountability mechanisms that support delivery of the plan and robust periodic reporting; and
- measures to address material risks to, and leverage opportunities for, the natural environment and stakeholders, such as the workforce, supply chains, communities, or customers, which arise as part of these actions.
The TPT Framework further sets out recommendations as to how transition plans should be effectively disclosed. These are structured around five “Elements”,[i] which also mirror the key components of a transition plan that the Glasgow Financial Alliance for Net Zero (GFANZ) recommends for financial entities (see Latham’s blog post on the GFANZ recommendations for further information). While the GFANZ framework focuses on financial institutions only, the TPT Framework would apply to companies outside the financial sector. The TPT setting core themes similar to the GFANZ framework for entities outside of the financial sector, rather than relying on another more widely adopted framework like the TCFD Recommendations, is a notable development because it aligns the TPT Framework with a bespoke framework produced for an alternative target audience.
The five Elements are then split into 19 “Sub-Elements” and the TPT Framework provides disclosure recommendations for each of these Sub-Elements.
The TPT Guidance would supplement the TPT Framework by advising on how entities can set transition plans in accordance with best practice and also providing further information in relation to recommended disclosures against each of the 19 Sub-Elements.
The TPT Guidance acknowledges that the level of detail and content of a transition plan may change over time, particularly in relation to developing issues such as Scope 3 greenhouse gas emissions. The Guidance notes that “the TPT recognises that entities may currently face challenges in reporting accurate and reliable Scope 3 emissions data” and states that entities unable to calculate Scope 3 data for certain emissions categories should instead just identify the categories of emissions that are relevant.
Convergence of Standards
Notably, the TPT Framework and Guidance intentionally leverage and reference the work of other standard-setting organisations, in particular the ISSB. This does not come as a surprise given the UK focus of the TPT; Sacha Sadan, the Financial Conduct Authority’s director of ESG, indicated that the ISSB represents the “future implementation of reporting standards” in the UK.[ii] However, the relevance of the ISSB extends beyond the UK; on the same day that the TPT issued its consultation, the CDP, a major global non-profit that conducts an international disclosure system in relation to the climate impact of companies and cities, announced that it will incorporate ISSB’s climate-related disclosure standards into its global 2023 environmental disclosure platform.
While the alignment between the TPT Framework’s five Elements with the equivalent transition plan recommendations from GFANZ represents a noteworthy feature of the TPT Framework, other transition plan standards continue to be developed in ways that may not achieve the same level of consistency. On the same day as the announcement of the TPT Framework, the UN High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities (UNHLEG) also set out its own standards for net zero plans by companies and other non-state actors. The UNHLEG standards specifically recommend that businesses should end all expansion of coal, oil, and gas reserves, and all net-zero pledges should include specific targets to end the use of and/or support for fossil fuels. Such requirements do not feature in the GFANZ framework or TPT Framework.
The consultation on the TPT Guidance and Framework will remain open until 28 February 2023 and the TPT has stated that finalised standards will be published during the course of 2023. The TPT has also indicated that it will publish a range of sector guidance in 2023, starting with an overview of sector-specific metrics from existing guidance which can supplement the TPT Framework and more detailed sector guidance being published later in the year.
Latham & Watkins will continue to monitor developments in relation to transition plan standards, frameworks and guidance, both in the UK and internationally.
[i] Foundation, Implementation Strategy, Engagement Strategy, Metrics & Targets, and Governance.