FAQs: Climate transition plans and the Transition Plan Taskforce
3 MINUTE READ | BY KATE JONES AND NICK WYVER | 11 APRIL 2024
This week, the Transition Plan Taskforce (TPT) launched its final technical guidance. These final documents mark the end of two years of work designing – in partnership with practitioners across industry – a framework for gold standard climate transition plans.
Given our team’s experience in both supporting the creation of the framework and designing corporate transition plans, we’re being asked lots of questions about how to approach it. We have amalgamated some of the key questions and our best answers for anyone becoming interested in what transition planning is and how it relates to their sustainability or corporate strategy activity.
What is climate transition planning and why am I hearing about it?
A climate transition plan sets out how a business plans to respond to, and contribute to, the transition to a low carbon economy.
Back at COP26, the UK government launched the Transition Plan Taskforce, with a mandate to design a ‘gold standard disclosure framework for transition plans’. The UK government has said it will look to mandate large and listed businesses to produce and publish a transition plan as they look to endorse the International Sustainability Standards Board (ISSB).
At the same time, legislation and regulation in other geographies increasingly asks for companies to produce a transition plan. The EU’s Corporate Sustainability Reporting Directive (CSRD) and forthcoming Corporate Sustainability Due Diligence Directive (CS3D) are good examples of this.
While new and emerging regulation may require the creation and disclosure of a transition plan, they will likely not instruct what a transition plan should include. That’s where the TPT framework comes in - providing the tools with which businesses can build credible, robust transition plans, enabling them to ‘explain to customers, shareholders and investors how they will adapt and grow as the global economy transitions to net zero’. Importantly, the framework has been designed by practitioners, with enormous contributions from businesses across almost every sector.
“A good transition plan can articulate how the problems of today could become the solutions of tomorrow”
What does the TPT framework look like?
The TPT framework asks companies to go beyond just decarbonisation, instead asking for a ‘strategic and rounded’ approach across three ‘channels’:
Decarbonising the entity – getting to net zero
Responding to climate related risks and opportunity – considering both the low carbon transition and also adaption needed in response to climate change
Contributing to an economy-wide transition – how the entity will accelerate the transition e.g. through its products and services, and thrive in a climate-resilient economy.
Companies may previously have considered and disclosed climate risk and opportunity through the TCFD framework, and may previously have set decarbonisation targets through the SBTi. The TPT framework, for the first time, requires businesses to use a framework which combines these with their broader contribution to the low-carbon transition into one holistic strategy:
Alongside these three channels, the framework is structured around three ‘guiding principles’:
The ambitions that you are setting, which may speak to all three channels above, including a decarbonisation target across Scopes 1, 2 and 3 GHG emissions.
The actions that you plan to take to achieve those ambitions, over the short-, medium-, and long-term.
How you are allocating accountability for delivery of the plan.
The summary disclosure framework is included below.
How does transition planning fit with my existing net zero target?
The simple answer is that a net zero target – including those aligned with the Science Based Targets Initiative (SBTi)– provide the ‘what’. They communicate to the world what you plan to achieve and by when, using technical guidance for what should and should not be counted as within your emissions boundary.
Transition planning – using the TPT framework – provides the ‘how’ to go alongside this. It requires companies to lay out much more detailed plans about how they plan to take action both within their own business and across their whole value chain, from the products they sell to the way in which they plan to use carbon credits or incorporate decarbonisation performance into incentives and remuneration.
In short, the two are entirely complementary. A net zero target is a critical part of any transition plan, but increasingly we expect that a net zero plan without a transition plan wrapped round it will be open to criticism and questioning.
What’s the benefit of using the TPT framework?
We think using the TPT framework to create a transition plan is a pivotal step forward for companies who either want to:
Establish a practical plan for how the business is going to both respond to and thrive through the low-carbon transition, putting in place the steps to achieve a net zero target, manage climate-related risks, and harness climate-related opportunities; and / or
Communicate what this plan is, and give confidence to their key stakeholders (indeed, in some instances we are seeing companies put their transition plans forward at their AGM for a shareholder vote).
The best articulation of the benefits of creating a transition plan came from Helen Dean, the CEO of NEST Pensions (£36.8bn under management) who spoke at the launch of the guidance this week. She described how a transition plan can change the way in which companies talk to their stakeholders – in this case their investor base – about transition-led risks and opportunities.
Helen offered the example of a large chemicals company, which on the face of it has very high emissions associated with its operations – enough to encourage some investors to divest from its holding – a motivation that a traditional decarbonisation target may encourage. But the company’s transition plan laid out detailed plans on how it will decarbonise its operations and evolve its business model to feature the creation of green hydrogen as a mainstay. This enabled NEST to engage in and understand the direction that the business planned to take, being able to assess both its commercial and sustainability suitability. Helen described the transition plan articulating how ‘the problems of today could become the solutions of tomorrow’.
Are there any parallels with this framework and the existing ESG frameworks and standards?
Noting the energy that companies are putting into other crucial disclosure frameworks, TPT have provided guidance for how their transition plan framework maps across to those, including:
The work of the International Sustainability Standards Board (ISSB)
The Taskforce on Climate-Related Financial Disclosures (TCFD);
The US Securities and Exchange Commission (US SEC);
The Corporate Sustainability Reporting Directive (CSRD); and
Glasgow Financial Allianz for Net Zero (GFANZ).
You can access this guidance here.
What are the new publications and how can I access them?
The TPT’s new publications include:
Transition plan guidance at a sector level, with summaries published for more than 30 sectors across financial services and the real economy, as well as deep dives for seven sectors with specific or more comprehensive needs;
Additional Advisory Papers on how to integrate specific topics into a transition planning process, including Adaptation, the Just Transition, Nature, and Small and Medium Enterprises; and
Further guidance on both the process of undertaking a transition planning cycle and on the opportunities and challenges of transition plans in emerging markets and developing economies.
All the guidance is available on the Transition Plan Taskforce’s website.
How SB+CO can help
Given the relative infancy of transition planning, we are delighted to have significant expertise on the topic area. Our Climate Strategy Lead, Kate Jones, was seconded into the TPT to design the sector-specific guidance for the Oil & Gas sector, while our wider leadership team have advised and partnered with businesses across the FTSE100 and FTSE250 to design their transition plans.
Whether you simply want an introductory conversation to help situate transition planning in among the myriad other sustainability frameworks – or want to discuss exactly how you could go about designing your own transition plan, we can help. Drop us a line at info@sbandco.com.
Nick Wyver
Consultancy Director
Kate Jones
Sustainability Strategy Director
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