UK regulators have been advised to ask investors to detail their collaborative engagement efforts as part of new guidelines on climate transition plans.
The Transition Plan Taskforce, a group of advisors appointed by the UK Treasury to steer its thinking on how companies and investors should outline their net zero strategies, has released its preliminary recommendations today.
The advice includes a requirement for entities to disclose information about how they engage with their suppliers and portfolio companies, and with peers.
It calls for transparency around the expected impacts of “current and planned engagement activities conducted with both downstream and upstream entities” and “collaborative activities with peers in the entity’s industry (and beyond as relevant)”.
The report suggests that transition plans should disclose “current and planned engagement with voluntary industry initiatives, including requirements that the company has chosen to comply with because of these initiatives (e.g., participation in a Race to Zero alliance, Mining 2030, Climate Action 100+, Responsible Steel or the Oil and Gas Climate Initiative).”
The recommendation comes amid growing concerns that shareholders could be accused of flouting competition laws through collective climate stewardship efforts. In the US, Arizona’s attorney general Mark Brnovich is investigating investors’ role in Climate Action 100+, which convenes shareholders managing trillions of dollars to push companies to become greener.
“This raises concerns about potential inappropriate pressure and anticompetitive conduct to align with the firms’ goals and not investors’ best interests,” Brnovich said in a statement last year.
This summer, Arkansas senator Tom Cotton wrote to BlackRock voicing similar concerns and asking the investment giant to explain its engagement activities through CA100+. The letter argued that “by ‘collaborating’ with other investors, you and your fellow CA100+ investor participants appear to be acting like a climate cartel”.
There is no suggestion in the guidelines from the UK Transition Plan Taskforce of how the information on collaborative engagement would be used by regulators or broader stakeholders, but the report states that collaborative engagement may be needed in the face of “systemic barriers to achieving […] transition objectives”.
More broadly, the guidelines suggest that transition plans should identify the metrics investors and companies use to measure their climate progress, alongside whether they use absolute or intensity targets and how much they rely on estimated data. If they do not include scope three emissions – those generated by goods and services – they should explain why, the report stated.
As well as explaining the financial implications of the transition – including how they impact human resources, research & development and the use of internal carbon pricing – entities should describe how they plan to change their products and services to support decarbonisation.
They should disclose policies around energy consumption, deforestation, physical climate risk and the just transition.
Lobbying activities, board oversight and training and pay structures should also be described in the context of reaching net zero, the report recommended.
Financially material information should be included in annual financial reports, but entities should also publish a separate, more detailed report at least every three years.
The guidelines are open for consultation until February 2023 alongside a ‘sandboxing’ period to test the rules in the market. They were commissioned as part of the UK government’s efforts to develop Sustainability Disclosure Requirements and are expected to feed into the Financial Conduct Authority’s rules for companies on climate reporting.
The United Nations also released guidance on transition plans for investors and companies today.