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Though not mandatory, TCFD strongly encourages firms to disclose transition plans and issued dedicated guidance on this in 2021. Likewise, while the IFRS S2 does not explicitly require companies to develop a transition plan, it does require disclosure where one is in place. Our sample shows that 18% of financial institutions disclosed a transition plan in 2023 compared to 13% last year.
However, many firms are still in the early stages of developing transition plans and the quality of the associated disclosures is variable. Reporting tends to be most comprehensive for areas such as greenhouse gas (GHG) and financed emissions metrics, sustainable product offerings, and the use of sector policies (e.g., on thermal coal exclusion) to guide financing decisions – all of which are included in TCFD guidance as recommended inputs.
In contrast, there are more gaps when it comes to disclosing a holistic view of these elements, and their strategic implications. For example, only 14% of companies provide an assessment of the impact of climate-related risks and opportunities on their business model and performance. Fewer still (8%) explain how their transition plan is embedded in firm-wide growth strategies. We expect growing focus under ISSB on the availability of decision-useful information to encourage more firms to include and monitor metrics in their transition plans with a high impact on stakeholder decisions.
On average, the disclosures of UK-based firms score higher than those from other markets. This could reflect the work of the Transition Plan Taskforce (TPT) in the UK, which aims to set the global ‘gold standard’ as a transition planning framework, building upon the initial guidance issued by the Glasgow Financial Alliance for Net Zero (GFANZ) in late 2022. Looking ahead, we expect companies and regulators worldwide to increase their focus on comprehensive, credible transition planning in response. The Financial Conduct Authority (FCA) is expected to assess the final TPT guidance in the coming months for compatibility with UK regulatory reporting requirements.