The Transition Plans Taskforce requires action – get your plan ready now

Going through key questions, this article offers a short, four-step workflow to help disclosure ‘preparers’ in your transition planning journey – with good time for likely mandatory requirements from 2025.

As climate change is accelerating and increasingly affecting our planet and ways of living, the need to decarbonise and embed sustainability into our business decisions is becoming increasingly urgent. In response to this, many companies are going through a transition period, moving sustainability to the heart of their strategies, and responding to the introduction of disclosure mechanisms such as the TCFD, TNFD, CSRD and ISSB, among others.

As these global sustainability efforts unfold and regulatory requirements increase, it begs the question of how they all interact and how the changes can be utilised to create value for the business. Across the G20 and selected other jurisdictions, efforts of establishing a common standard for what constitutes a best practice transition plan towards net zero carbon is underway. This is a response to the current inconsistencies in reporting and challenges with defined ESG standards.

As part of that response the US, Brazil, Australia, the EU, and the UK are now proposing the introduction of regulatory measures for disclosing transparent transition plans.

What are transition plans?

A transition plan is an entity’s strategy for how it will contribute to and prepare for a global transition towards a low GHG-emissions economy. Following the UK Government’s Greening Finance Roadmap, the Transition Plans Taskforce (TPT) was announced at COP26 as part of plans to become the world’s first net zero financial hub. The TPT was launched by HM Treasury to define a gold standard for developing transition plans, ensuring accountability and action within sustainable transition.

The framework ensures this by requiring that transition plans include clearly defined targets, short-, medium- and long-term actions, and accountability and governance measures.

What have we learned from early transition plans?

Early transition plans have varied in quality and lacked short-term actions as well as detail on how actions will be financed. This has made it difficult for users of transition plans – such as investors – to assess and compare them. The TPT aims to correct this by defining a framework for credible transition plans and providing comprehensive implementation guidance.

Companies are encouraged to start developing transition plans sooner rather than later. The TPT first published its Disclosure Framework and Implementation Guidance for consultation in November 2022. Following this consultation, the final version was published in October 2023, and a consultation on sector guidance has started.

What should a transition plan look like?

A good transition plan outlines the entity’s high-level ambitions and defines short-, medium- and long-term actions to reach these ambitions. A strong emphasis is placed on developing concrete short-term actions, which the TPT have found are lacking from most transition plans today.

The transition plan must specify how the identified actions will be financed in order to ensure their integrity. Secondly, the plan should outline governance and accountability mechanisms with which the company can hold itself accountable during the transition.

Finally, a good transition plan includes measures to address material risks to the natural environment and stakeholders, as well as measures to leverage opportunities arising from the economy-wide transition towards net zero. The identification of risks and opportunities is intentionally overlapping with TCFD disclosures, allowing entities to build on their existing reporting and to avoid adding additional burden or inconsistencies. Below the key elements of creating TPT-aligned transition plans: