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 itself — from assets it owns or controls.
- Scope 2 emissions: These include those that a company is indirectly responsible for, such as the emissions created through its energy consumption.
- 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 the emissions from a company’s investments, as well as those created by customers who use their products.
What should a net zero transition plan include?
The UK Government’s fact sheet on the topic published in November 2021 states that:
A transition plan sets out how a company will adapt as the world transitions towards a low-carbon economy. It should set out:
- High-level targets the company is using to mitigate climate risk, including GHG reduction targets
- A commitment to net zero with regular milestones
- Actionable steps the company plans to take to achieve those targets
Transition plans should be aligned with the Task Force on Climate-related Financial Disclosures. Plans will need to be independently verified and made publicly available.
The Transition Plan Taskforce and consultation
HM Treasury has launched a Transition Plan Taskforce (TPT) 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 May 2022, the TPT launched a Call for Evidence seeking feedback on a Sector-Neutral Framework for private sector transition plans. This framework will inform UK regulations for publishing standardised transition plans. Following this Call for Evidence which closes on 13 July 2022, the TPT will develop the Sector-Neutral Framework. A draft will be published for consultation towards the end of the year with a view for finalisation in early 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. It is not yet clear whether companies that do not publish plans will be fined. However, those that fail to comply will need to explain why they have not done so.
Planning your organisation’s decarbonisation strategy
Net zero transition plans are likely to influence how customers, employees and investors view a company’s commitment to net zero. Therefore, developing a plan now should be viewed as a strategic priority.
Companies that choose to act now should consider taking these seven steps:
- Identify your carbon emissions and how they can be reduced to zero
- Align your business strategy with your net zero ambition
- Build a business case for your net zero ambition
- Get buy-in from your key stakeholders
- Access the finance required to fund your net zero transformation
- Establish the systems of governance measurements and controls that will be needed to build trust in your net zero plan
- 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.