Report on Transition Plan Disclosures
The International Organization of Securities Commissions (IOSCO) releases a report on transition plan disclosures, aimed at analyzing impact of the transition plan on investors and financial markets.
The IOSCO believes that the transition plan is the core of climate information disclosure, aimed at elaborating the company’s strategic planning and management processes for addressing climate change, and is a key focus for stakeholders.
Related Post: Association for Financial Markets in Europe Releases Climate Transition Plan Report
Global Transition Plan Framework
The transition plan can provide forward-looking information for the financial market, helping market participants understand climate related risks and opportunities. Investors can use the transition plan to evaluate the company’s decarbonization path in order to meet their investment portfolio emission reduction targets. Regulatory agencies can use transition plans to reduce systemic climate risks. Intermediary agencies (such as data providers, rating agencies) can use transition plans to create low-carbon products. Therefore, a consistent, comparable, and reliable transition plan will have a positive impact on the financial market.
There are some commonly used transition plan frameworks globally, including:
IFRS S2: IFRS S2 is issued by the International Sustainability Standards Board (ISSB), which requires companies to disclose information about climate transition plans and the key assumptions used in developing these plans. IFRS S2 provides decision-making basis for the primary users (investors, lenders, and creditors) who use sustainable information, and discloses sustainable information based on financial materiality principles.
Transition Plan Taskforce (TPT) Framework: The TPT framework provides companies with disclosure recommendations based on IFRS S2, which includes transition plan. This framework can help companies communicate climate commitments to stakeholders and provide decision-making support for investors. The company discloses information based on financial materiality, but may add additional disclosures to communicate its climate transition strategy to stakeholders.
CDP Technical Note: The CDP technical note identifies six principles and eight basic elements of a credible transition plan, helping companies adjust their existing assets, operations, and business models to comply with climate targets. These disclosures are aimed at stakeholders to track climate action and compare it with other companies. The company discloses information based on financial materiality and impact materiality, with a focus on climate goals.
European Sustainability Reporting Standards (ESRS): The ESRS E1 require companies to disclose their transition plans in order to ensure that their business models and strategies are compatible with climate goals. The company needs to disclose the material impact on the environment and society, as well as the impact of sustainable development factors on its based on double materiality.
Global Transition Plan Disclosures
The IOSCO conducts investigations into jurisdictions where its members are located in order to understand the development of disclosed transition plans. Different jurisdictions have differences in application scope, target users, transition framework. Most jurisdictions have already made net zero emission commitments by 2050, as well as short-term and medium-term goals.
In terms of climate related disclosure, 23 jurisdictions have already regulated the disclosure of climate information by listed companies, with 15 developing rules based on ISSB standards and 8 developing ESRS. These standards require companies to disclose their transition plans. In May 2024, the International Financial Reporting Standards (IFRS) Foundation and the European Financial Reporting Advisory Group (EFRAG) released guidelines for interoperability of sustainable disclosure standards, demonstrating their consistency.
In terms of transition plan disclosures, most jurisdictions have developed transition plan disclosure requirements based on broad climate disclosure standards, rather than directly formulating specific regulatory policies. Most transition plans are defined based on carbon emissions, while some also incorporate factors such as low-carbon economy. Listed companies usually disclose their transition plans in the first batch, followed by others in stages. Some jurisdictions have separately established transition plan disclosure requirements for financial institutions.
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