Does Your Company Have a Climate Transition Plan?An interview with
The United Kingdom has just launched a major task force to help companies and the financial sector transition to net zero and meet regulatory obligations to disclose their plans by next year. The Transition Plan Taskforce (TPTF) consists of CEOS and senior executives from companies, academia and nonprofits.
Kate Levick is co-head of the task force’s new secretariat.
LEVICK: The U.K. chancellor of the exchequer, Rishi Sunak, announced at COP26 that it would be a requirement for large listed companies and for financial firms in the U.K. to disclose their climate transition plans by 2023. And when he made that announcement, he also said that he’d create a taskforce to advise on what a good, robust, credible transition plan looks like. And that’s the work that we’re now setting off and starting to really motor on.
A number of leading companies have already published climate transition plans, so there’s a body of practice out there. And, obviously, transitions will look different for different companies in different sectors with different geographical exposures, so there isn’t a complete one-size-fits-all. Having said that, there is a common core to what can be considered a good transition plan, and the taskforce has started by considering what should be in an overarching sector-neutral framework.
We currently have a call for evidence out until mid-July, where we’re inviting all stakeholders to comment on the initial approach proposed and to provide more input that will help the taskforce to draft that sector-neutral framework. As that work gets more developed, and it’s clear what the outlines of the sector-neutral framework are going to look like, we’ll move toward sectoral work.
BRINK: Are any of these elements mandatory — is it going to be required for U.K. companies to create these plans?
LEVICK: Yes, it will be a requirement. It will initially be on a comply or explain basis, but the COP26 announcement signals clearly that this is set to be a mandatory requirement for firms. A number of companies are doing it already, but there will be other companies for whom this is really quite a new practice and might be quite unfamiliar, and that’s why it’s so important to produce robust guidance.
The Elements of a Good Transition Plan
BRINK: So what are the key elements of a good transition plan?
LEVICK: I think there are a few elements. A key one is to not simply have a commitment to do something by 2050, but also to have interim targets that are credible and robust and realistic. There are a range of areas that should be looked at.
In our call for evidence, we set out a number of principles that appear to be common to all of the best practice guidance that exists at the moment, and then a number of sub elements that sit underneath those principles. And as I say, we’re inviting feedback on whether those are the right ones.
But the taskforce has identified those through looking at our body of existing practice, so we’re pretty sure that those are in tune with where the market’s at. How will firms be changing their business strategy and being ready for a net zero world? What will their part be in moving to a whole economy net zero transition?
I think what we’re seeing is this rapid acceleration of regulatory engagement on these issues, and that’s not really going to change.
BRINK: You are working with both the financial sector and the real economy. Which bits do you think are going to be harder or more challenging to do?
LEVICK: I think they each have their separate challenges, and they’re both very important. The U.K. Treasury, which asked for this taskforce to be created, has always been very clear that this is an expectation on both the financial sector and the real economy. But there is a debate about which one goes first, which drives the other. Realistically, they actually both need to move at once. So I think it’s great the taskforce reflects that.
Stripping Greenwashing Out of Planning
BRINK: I imagine a primary objective of this is to cut down on greenwashing. How easy do you think it’s going to be to eliminate greenwashing from these plans?
LEVICK: Well, this is exactly where it’s important to be able to identify what a good plan looks like. What is critical, what is robust? And then the next question will be, well, what is the mechanism for scrutinizing that?
This is becoming a matter of financial regulations, so this is something that financial regulators will expect to see. I don’t think, realistically, we will overnight have the expert financial regulators become environmental experts, so it’s very important that those plans are also looked at by shareholders.
We’re increasingly seeing company transition plans going to shareholder votes and forward prospects for decarbonization and adaptation to a net zero world as being something that does play a part in whether firms are looking like a good bet to invest in — and also wider stakeholders. And, again, we’re seeing a lot of scrutiny and sometimes criticism from civil society and NGOs when it seems as though firms are talking the talk and not walking the walk. This is now a regulator-led initiative, but the role of other stakeholders, including the shareholders crucially, will remain key.
BRINK: Is there going to be an expectation that companies must be able to track every Scope 3 emission that they might be connected with, or will there be some latitude there?
LEVICK: Emissions reporting is not new. But full management of Scope 3 emissions is certainly something that has come particularly late to the financial sector where different sub-sectors of the financial sector are still finding issues around financed emissions or facilitated emissions quite tricky to get a handle on.
I think that’s probably one of the things that stakeholders will look at when they want to say whether a transition plan is credible: Is there suitable management and measurement of actual impacts going on so that we know what we’re transitioning from and what we’re transitioning to?
It’s Moving Fast
It’s notable how fast this agenda is moving. It took a really long time for emissions reporting and broader climate reporting and sustainability reporting to become a mainstream activity and that has now happened. This transition plan agenda has moved much, much faster, and I think what we’re seeing is this rapid acceleration of regulatory engagement on these issues, and that’s not really going to change.
So the message to firms is to really pay attention to this.
It may seem to have come out of nowhere, but it’s part of a broader regulatory agenda, which certainly in the U.K. is being set up very clearly through things like the greening finance roadmap, which isn’t going to go away. It’s only going to accelerate. It’s part of the new normal, and it’s a good idea for firms to get ahead of this and really participate rather than just wait and see what happens next.