COP26: UK wants to be world first net zero financial centre and more detail about mandatory climate transition plans

The UK Chancellor, Rishi Sunak, announced on 3 November 2021 (i.e. finance day at COP26) that it wants the UK to be the world’s first net zero financial centre and that it plans to publish in 2022 a transition pathway for the financial sector setting out how the sector will transition to net zero by 2050.

Central to the UK’s plans to become a net zero financial centre is the forthcoming requirement on certain firms to publish climate transition plans. This had already been announced in October as part of the UK government’s Greening Finance Roadmap but we now have more detail about how the new requirement will work.

According to the government’s Factsheet:

• The government will require asset managers, regulated asset owners and listed companies to publish transition plans setting out how they plan to adapt and decarbonise as the UK moves towards net zero by 2050.
• The requirement will apply on a comply or explain basis.
• Transition plans may be required from 2023 (but exact date is not yet clear).
• However, although there will be a requirement to produce a climate transition plan, there will be no requirement to set a net zero target.
• The government is adamant that it is up to firms and their shareholders to decide how their businesses adapt to the net zero transition and that different firms will have different overall targets. In its mind, a good transition plan sets out those decisions publicly in a comparable way and includes interim targets and actionable steps the organisation plans to take to meet those targets. Investors, through their stewardship activities may then use their influence and votes to encourage more ambition or accelerated progress.
• The government will set up a high-level Transition Plan Taskforce to develop a gold standard for transition plans and net zero metrics to tackle greenwashing. The Taskforce will be composed of regulators (including the FCA), industry, academics and civil society groups, and will report by the end of 2022.
• Once standards for what a good quality transition plan looks like emerge, the government will incorporate these into the UK’s forthcoming Sustainability Disclosure Requirements (SDR) regime. In the meantime, see the recommendations of the Science-Based Targets initiative (SBTi) and our top tips for producing robust transition plans.

Also important to the government’s ambition for the UK to become a net zero financial centre are its plans to develop a UK Green Taxonomy, an SFDR-equivalent for UK investment products, and SDR disclosure regime, as well as plans to roll out mandatory TCFD-aligned disclosures to companies, asset managers and asset owners. For more information, see:

• Greening Finance: A Roadmap to Sustainable Investing;
• Climate-related disclosures to become compulsory for many UK companies and LLPs; 
• Dates for the diary: FCA sets out upcoming ESG programme of work; 
• FCA publishes Discussion Paper on UK SDR and investment labels - similar aims but very different approach to EU SFDR; and 
• COP26 microsite.

The obligation to publish climate transition plans should not be confused with the "say on climate" initiative, where the Investor Forum has called on the UK government to consult on requiring companies to put their climate transition plans to a (non-binding) vote at AGMs. See here for more on that.