UK government advisers have unveiled their final guidance for designing ‘gold standard’ climate transition plans.

The Transition Plan Taskforce (TPT) was set up on the back of COP26, where then-Chancellor of the Exchequer, Rishi Sunak, pledged to mandate climate strategies throughout the UK economy. The Treasury subsequently tasked TPT with designing expectations that regulators could use when they developed the rules.

The TPT hopes that those expectations, published today, will become global best practice and be taken up by regulators in other jurisdictions.

To increase the likelihood of that and “support international convergence on what makes a transition plan robust and credible”, TPT has made them compatible with international climate disclosure standards from the International Sustainability Standards Board (ISSB) and transition plan guidelines from the Glasgow Finance Alliance for Net Zero (GFANZ).

Today’s 45-page report describes a good transition plan as one that explains the entity’s “strategic ambition”.

“This comprises its objectives and priorities for responding and contributing to the transition towards a low GHG-emissions, climate-resilient economy,” TPT said. “It also sets out whether and how the entity is pursuing these objectives and priorities in a manner that captures opportunities, avoids adverse impacts for stakeholders and society, and safeguards the natural environment.”

FCA commits to picking guidelines up

Sacha Sadan, head of ESG at the UK’s Financial Conduct Authority (FCA), expressed support for the guidelines and said the regulator would consult next year on new rules for climate transition plans that would leverage the TPT’s work.

“In the meantime, we encourage listed companies and regulated firms to engage early with the framework, and get started,” he said in a statement.

The FCA already requires listed companies, and regulated asset owners and asset managers, to disclose climate transition plans under its TCFD rules. These requirements are comply-or-explain, however, and do not provide much detail about what should be included in a plan.

The regulator will prioritise introducing stricter rules – based on a combination of the ISSB and the TPT – into its listing rules for companies. Further down the line, it is expected to do the same for investors under its supervision.

In the report, TPT said that climate transition plans could be used to “improve the information available to investors and lenders, enabling them to price risk and make capital allocation decisions”, as well as underpinning transition finance instruments and products.

UK Green Taxonomy

The TPT’s announcement comes just days after the Green Technical Advisory Group – another body appointed to advise UK government on green finance – published its final report on the potential for a UK taxonomy.

In it, GTAG calls for the development of “enduring governance arrangements” for the taxonomy.

It suggests that “as a least regrets option”, the government should set up an advisory body – possibly through the Financial Reporting Council or the Audit, Reporting and Governance Authority – to support further development of the framework. Over the longer term, responsibility for the taxonomy could fall to a new organisation, it added.

Ingrid Holmes, executive director of the UK’s Green Finance Institute and chair of GTAG, said “a usable and scientifically-robust green taxonomy” was necessary in the UK.

The UK government has been accused of kicking its taxonomy project into the long grass in recent years, at one point considering ditching the initiative altogether. It is due to consult on how to develop a taxonomy this autumn, but has so far not done so.

James Alexandar, chief executive officer of the UK Sustainable Investment Forum, urged the government to move forward with the process.

“Our members continue to require a clear, science-based taxonomy in the UK that provides valuable transparency over those economic activities supporting the UK’s climate objectives,” he said in a statement last week.

“It is now vital that the government brings forward its green taxonomy consultation without further delay, with clear timelines set out for how and when it will be implemented,” he added.

There are now almost 50 taxonomies under development globally.

The latest digital edition of IPE’s magazine is now available