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

Dedicated to driving a sustainable future and enabling organisations to thrive in a net zero economy.

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 Head of wavespaceᵀᴹ

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

4 minute read 26 May 2022

Publishing a decarbonisation strategy 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 net zero 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), Chancellor Rishi Sunak announced that all UK-listed businesses and financial institutions will be expected to publish decarbonisation plans from 2023.

We explore what is known so far about these requirements, what a net zero transition plan should include and the likely timings. We also detail seven steps that organisations can take now — ahead of any legal requirements — 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 net zero 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 net zero 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 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:

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

Summary

Publishing a net zero 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

Dedicated to driving a sustainable future and enabling organisations to thrive in a net zero economy.

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 Head of wavespaceᵀᴹ

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