4 minute read 26 May 2022
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What mandated net zero transition plans mean for UK-listed companies

Authors
Rob Doepel

EY UK&I Managing Partner for Sustainability; EY UK&I Climate Change and Sustainability Services Leader

Dedicated to driving a sustainable future. Enables organisations to thrive in a net zero economy. Born and raised in Australia.

Harry Gaskell

Senior Advisor, Sustainability, Ernst & Young LLP

Helping businesses create a sustainable impact and generate long-term value. Angel investor. Marathon runner. Father of two.

Kim Paykel

EY UK Sustainability Leader, Consumer Products & Retail and UK Sustainability Innovation Leader

Information omnivore. Parent to a child not lacking executive presence. Will likely give you a podcast recommendation.

4 minute read 26 May 2022

Developing your organisation's transition plan will allow businesses to meet the UK Government’s proposed 2023 requirements and drive value-creation.

In brief

  • Why companies should have a good understanding of what a climate transition is and what types of emissions scopes it should include. 
  • A look at the UK businesses that transition plans will apply to, how these plans will come into force and the implications for not publishing a plan. 
  • Seven steps that businesses can take now to plan, implement and measure their decarbonisation strategy and transformation.

The UK Government had already committed to transition the financial sector to net zero by 2050 and during the 26th United Nations Climate Change Conference of the Parties (COP26), then Chancellor Rishi Sunak announced that all UK-listed businesses and certain financial institutions will be expected to publish decarbonisation plans from 2023.

We explore what is known so far about these requirements, what a climate transition plan should include and the likely timings. We also detail seven steps that organisations can take now to publish transition plans. By acting early, these companies are likely to have a competitive advantage.

What did the Government announce?

Speaking at COP26 in November 2021, the Chancellor stated that the UK will move towards making it mandatory for companies to publish a clear, deliverable plan on how they will decarbonise and transition to net zero.

This will apply to asset managers, regulated asset owners and UK-listed companies. These companies will be expected to disclose their climate transition plans from 2023. It is expected that shareholder and investor pressure will mean that many companies voluntarily choose to publish a plan ahead of the deadline.

What is a climate transition plan?

A company’s net zero transition plan will need to include its targets to reduce greenhouse gas (GHG) emissions, the steps it plans to take to get there and milestones ahead of 2050.

The plan should outline how businesses propose to cut emissions produced either directly or indirectly by their activities. Plans will need to include the three kinds of emissions, with Scope 3 emissions being the most complex to track.

What do the different emission scopes cover?

Companies will need to understand what emissions they will be responsible for measuring. To aid global efforts to measure and track GHG emissions, the GHG Protocol has defined three types:

  • Scope 1 emissions: These include those that a company directly produces from assets it owns or controls.
  • Scope 2 emissions: These are indirect emissions resulting from the generation of the energy used by a company.
  • Scope 3 emissions: These include those in a company’s supply chain. Published plans will have to outline strategies for reducing emissions produced by the businesses that they buy goods or services from. Transition plans will also need to consider how to cut emissions from a company’s investments, as well as those created by customers who use their products.

What should a climate transition plan include?

A transition plan should set out how a company will adapt as the world transitions towards a low-carbon economy. It should include:

  • High-level ambitions to mitigate climate risk, including GHG reduction targets
  • Actionable steps the company plans to take to achieve those targets, including how those actions will be financed
  • Governance and reporting frameworks to support the delivery of the plan

In the UK, there are currently no external assurance requirements, or plans to mandate external assurance, on sustainability information. However, entities are increasingly choosing to obtain external assurance on sustainability information, including GHG emissions, in response to stakeholder demands.

The Transition Plan Taskforce

HM Treasury launched a Transition Plan Taskforce (TPT) in April 2022 to provide companies with guidance of what a ‘gold standard’ transition plan should look like. The TPT has a two-year mandate and will be responsible for informing the implementation of the UK’s Sustainability Disclosure Requirements.

In November 2022 the TPT published their Disclosure Framework and Implementation Guidance for gold standard transition plans, which is under consultation until 28 February 2023 with the final publication for its Disclosure Framework and Implementation Guidance expected in summer 2023.

Mandating published plans

The UK’s financial regulator the Financial Conduct Authority (FCA), will oversee the new mandates for companies to publish their decarbonisation plans. Those that fail to comply will need to explain why they have not done so. 

Planning your organisation’s decarbonisation strategy

Climate transition plans are likely to influence how customers, employees and investors view a company’s commitment to decarbonisation. Therefore, developing a plan now should be viewed as a strategic priority.

Companies that choose to act now should consider taking these seven steps:

  1. Identify your carbon emissions and how they can be reduced
  2. Align your business strategy with your decarbonisation ambition
  3. Build a business case for your decarbonisation ambition
  4. Get buy-in from your key stakeholders
  5. Access the finance required to fund your decarbonisation transformation
  6. Establish the systems of governance measurements and controls that will be needed to build trust in your decarbonisation plan
  7. Publish the plan

Ultimately, the focus on how companies are contributing to the global ambition to achieve net zero by 2050 is only going to intensify. Companies should view the need to publish a transition plan now as an opportunity to gain a valuable head start, establish themselves as net zero leaders and likely increase their brand value.

TPT detail updated 22 November 2022.

Summary

Publishing a climate transition plan ahead of the proposed UK Government mandate is an opportunity to gain a head start and establish your business as a leader in sustainability. Plans must include targets to reduce your carbon emissions and how you will get there. EY highlights seven steps that can be taken now.

About this article

Authors
Rob Doepel

EY UK&I Managing Partner for Sustainability; EY UK&I Climate Change and Sustainability Services Leader

Dedicated to driving a sustainable future. Enables organisations to thrive in a net zero economy. Born and raised in Australia.

Harry Gaskell

Senior Advisor, Sustainability, Ernst & Young LLP

Helping businesses create a sustainable impact and generate long-term value. Angel investor. Marathon runner. Father of two.

Kim Paykel

EY UK Sustainability Leader, Consumer Products & Retail and UK Sustainability Innovation Leader

Information omnivore. Parent to a child not lacking executive presence. Will likely give you a podcast recommendation.