The UK Transition Plan Taskforce (TPT) published its final recommendations on climate transition plan disclosures, along with implementation guidance on 9 October (see our previous briefing). The TPT Disclosure Framework and accompanying implementation guidance, which are sector-neutral (i.e. not aimed at any particular sector), provide a set of good practice recommendations aimed at facilitating high-quality, consistent, and comparable transition plan disclosures. They provide a roadmap for organisations in the private sector to formulate and report credible and robust climate transition plans.
The TPT has now published, for consultation, draft guidance for seven sectors:
- asset owners;
- asset managers;
- electric utilities & power generators;
- food & beverage;
- metals & mining; and
- oil & gas.
All of the sector-specific guidance can be accessed via this webpage on the TPT website.
The TPT advises preparers to first read the Disclosure Framework before reading the sector-neutral and sector-specific guidance.
The sector-specific guidance gives advice to firms on what they "should consider” and "may consider" disclosing across the five disclosure elements in the TPT Disclosure Framework: foundations, implementation strategy, engagement strategy, governance, and metrics and targets. None of the suggestions in the sector-specific guidance replace the disclosure recommendations in the Disclosure Framework; they are intended to be complementary and to help preparers in specific sectors interpret the Disclosure Framework.
This blog post focuses on the draft guidance for the financial sector.
The Banks Guidance covers a wide spectrum of banking activities and, while a range of investment banking activities are covered, the focus of the TPT is on commercial and retail banking. Following the consultation, the TPT may consider whether and how to further address investment banking within the guidance.
The Guidance recommends that banks should address their full range of operations and activities in their transition plans, covering on- and off- balance sheet activities, including (but not limited to) lending, sales and trading, capital markets, and advisory activities. The TPT recognises that banks may have in-house asset management functions and in such cases it recommends that an entity also use the TPT Asset Managers Guidance.
In particular, the Banks Guidance recommends (in addition to recommendations on engagement, metrics and targets) that an entity consider disclosing:
- its objectives and priorities for reducing the financed and facilitated emissions associated with its on- and off-balance sheet activities (including, but not limited to, lending, sales and trading, capital markets, and advisory activities), including any commitments made and the rationale for those commitments;
- its objectives and priorities for managing climate-related risks and capturing climate-related opportunities through its on- and off-balance sheet activities;
- how the Strategic Ambition of its transition plan is aligned towards financing and/or enabling (as applicable) the transition to a low-GHG emissions, climate-resilient economy;
- in defining its objectives and priorities, an entity may consider the four key financing strategies outlined by GFANZ:
- climate solutions: financing or enabling entities and activities that develop and scale climate solutions;
- aligned: financing or enabling entities that are already aligned to a 1.5oC pathway;
- aligning: financing or enabling entities committed to transitioning in line with 1.5oC-aligned pathways; and
- managed phase-out: financing or enabling the accelerated managed phase-out (e.g. via early retirement) of high-emitting physical assets
- information about the short, medium and long-term actions it is taking, or plans to take, in its core banking activities and processes, including, but not limited to, lending, sales and trading, capital markets, and advisory activities to achieve the Strategic Ambition of its transition plan;
- whether and how it evaluates its clients’ transition plans, where relevant, to inform decision-making, including its approach to evaluating the quality and credibility of those plans;
- when disclosing information about any actions it is taking or plans to take, an entity may consider providing information at the sector level and/or geographical level;
- the extent to which it offers, or plans to offer, climate- or sustainability-linked financial products (including nature-linked products);
- information about any policies that it has used, or plans to use, for sectors and activities that are emissions-intensive (e.g. burning of thermal coal, oil and gas, and deforestation), including managed phaseout plans in these sectors.
Asset Owners and Asset Managers Guidance
The Asset Owners Guidance applies to a diverse group of entities that include public- and private-sector pension plans, re-/insurance companies, sovereign wealth funds, endowments, foundations, and family offices.
The Guidance recommends that asset owners should consider addressing their full range of operations and activities in their transition plans, including their investment and non-investment activities, and that an asset owner should incorporate all relevant asset classes within its transition plan, with distinctions made between asset classes where relevant. However, the TPT recognises that there may be data and/or methodology limitations for some asset classes and recommends that asset owners should be transparent in identifying these limitations and outline any steps that they are taking, or plan to take, to address them.
The Guidance recognises that asset owners who have a substantial portion of their assets managed externally are reliant on their asset managers to implement elements of their investment-related transition plan and therefore highlights the importance of incorporating climate-related considerations into an asset owner’s contractual governance and accountability mechanisms with its asset managers (including asset manager selection, appointment and monitoring, and legal investment management agreements (IMAs)).
The Guidance acknowledges that the primary responsibility of asset owners is to secure the financial futures (e.g. retirement benefits, insurance pay-outs, etc) of their beneficiaries in line with their fiduciary duty and duties imposed by financial regulators. And that in the exercise of those duties, asset owners need to identify, assess and manage a range of climate-related risks which present a significant and complex threat to their firms, their portfolios, and their ability to create value for their beneficiaries over the long term.
The Asset Owners Guidance recommends (in addition to recommendations on engagement, metrics and targets) that an entity consider disclosing:
- its objectives and priorities for reducing the financed emissions associated with its investment activities, including any commitments made and the rationale for those commitments;
- its objectives and priorities for managing climate-related risks and capturing climate-related opportunities through its investment activities;
- whether and how its interpretation of its fiduciary duty supports the Strategic Ambition of its transition plan;
- information about the short, medium and long-term actions it is taking, or plans to take, in its investment process to achieve the Strategic Ambition of its transition plan, whether in relation to all or part of its investment activities;
- whether and how it considers the transition plans of its investee companies as part of its investment process, including its approach to evaluating the quality and credibility of those plans;
- when disclosing information about any actions it is taking or plans to take, an entity may consider providing information at the level of the asset class, sector and/or geography; and
- the extent to which it offers, or plans to offer, climate- or sustainability-linked products (including nature-linked products).
The Asset Managers Guidance is broadly similar to the Asset Owners Guidance with the necessary alterations to cater for differences in business strategies and engagement.
Firms have until 29 December 2023 to provide feedback on the draft guidance, with a view to the final guidance being published in February 2024.
As mentioned in previous blog posts:
- the UK government is expected to launch a consultation on transition plan disclosure requirements for large public and private companies in winter 2023; and
- the FCA plans to consult in the first half of 2024 on rules for listed companies to disclose in line with the UK-endorsed ISSB standards and the TPT Framework.
For more information on the UK TPT and its recommendations, see:
- our client briefing - UK TPT publishes final recommendations on credible and robust climate transition plans
- our video – New video: How to use the new UK TPT guidance to get started on climate transition planning