UK government advisers have published finalised guidance to help asset owners develop credible climate transition plans.

The Transition Plan Taskforce, set up by UK Treasury in 2022, today released a ‘deep dive’ into what should be disclosed in a climate strategy. 

Its guidance for asset owners, which was put out for consultation last year, was informed by representatives from Aegon UK, Aviva, BT Pension Scheme, the Church of England Pensions Board, CPP Investments, Legal & General, M&G Investments, Merseyside Pension Fund, NEST, Phoenix Group, Royal London and Scottish Widows.

“The primary responsibility of asset owners is to secure the financial futures (including but not limited to retirement benefits, insurance pay-outs etc.) of their beneficiaries in line with their fiduciary duty (where applicable), contractual obligations and duties imposed by financial regulators,” said the document.

It added that, in order to do this, an asset owner should explain how it integrates climate into its investment decisions, manager selection and contracts, and engagement activities.

“Taking a strategic and rounded approach helps asset owners consider a wide range of decarbonisation levers available to them and, where possible, avoid a strategy of ‘paper decarbonisation’, which is characterised by actions that decarbonise an entity’s portfolio in ways that may not necessarily contribute to the actual decarbonisation of the economy,” said the TPT.

Asset manager reliance

The taskforce acknowledges the unique relationship that asset owners have with investment managers when it comes to their transition plans.

“Asset owners, especially those that have a substantial portion of their assets managed externally, are reliant on their asset managers to implement and facilitate elements of their investment-related transition plan,” TPT noted.

“Therefore, 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) are important ways in which asset owners can embed and accelerate the transition to a low-GHG and climate-resilient economy.”

In instances in which an asset owner runs their own money, they should use the guidance for asset managers alongside the asset-owner recommendations.

“Input was obtained from asset managers during the development of the Asset Owners Guidance and vice versa, to enable alignment between the documents, where appropriate,” said TPT.

The guidance is one of seven sector-specific documents published today, with climate adaptation the subject of the most strengthening across the finalised guidance.

Similar advice has been provided for asset managers and banks, as well as real-economy companies such as food and beverage, metals and mining, oil and gas, and electric utilities and power generators.

TPT also published guidance on how entities should approach climate adaptation, nature and the just transition in their climate plans.

In addition, the 15 documents include advice for small and medium enterprises and companies in developing economies and emerging markets.  

For now, the guidance is voluntary, although the Financial Conduct Authority is expected to reference the documents as part of a broader update to its climate disclosure rules, which sought to bring them in line with the International Sustainability Standards Board’s (ISSB) new expectations.

The guidance uses the same language and foundations as the work being done by ISSB and GFANZ.

In a bid to become a global leader on transition plans, the UK has been actively encouraging legislators around the world to adopt TPT’s guidance, rather than developing their own versions.

Switzerland and Australia are both understood to be considering the expectations as part of their thinking around climate disclosure rules.