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:
- Identify your carbon emissions and how they can be reduced
- Align your business strategy with your decarbonisation ambition
- Build a business case for your decarbonisation ambition
- Get buy-in from your key stakeholders
- Access the finance required to fund your decarbonisation transformation
- Establish the systems of governance measurements and controls that will be needed to build trust in your decarbonisation 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.
TPT detail updated 22 November 2022.