Transition Plan Taskforce Disclosure Guidance
The Transition Plan Taskforce (TPT) has released final disclosure guidance to help financial institutions establish an information disclosure framework consistent with climate transition plans.
Transition Plan Taskforce was established by the UK Treasury and brought together stakeholders including the financial industry, academic industry, regulatory agencies, etc. Its purpose is to study and publish an information disclosure framework for the transition plan. In the 2021 Greening Finance Roadmap, UK stated that it will strengthen the requirements for corporate sustainability reporting, release a climate transition plan, and plan to build a net-zero center.
Background to TPT Transition Framework
TPT believes that transition plan is an important part of global ESG development. It can provide investors with climate and environmental information and provide financial support to transition parties. 8,300 companies and more than 500 financial institutions around the world have signed the United Nations Non-State Actor Initiative, and organizations such as the Glasgow Financial Alliance for Net Zero (GFANZ) are also developing transition plans and enhance signatory disclosures.
TPT’s transition framework is based on the climate disclosure guidance (IFRS S2) developed by the International Sustainability Standards Board (ISSB). TPT adopts the IFRS S2 definition of a climate transition plan and the general principles of the disclosure guidance IFRS S1. In addition, TPT draws on GFANZ’s net zero framework, aiming to improve comparability and credibility.
Related Post: Deep Dive on IFRS Climate Related Sustainable Disclosure Standards
Contents of the TPT Transition Framework
TPT believes that a transition plan is an aspect of a company’s strategy that sets out the company’s goals, actions and voluntary actions to transition to a low-carbon economy, as well as carbon emission reduction activities. In line with this definition, TPT integrates climate transition and greenhouse gas emissions into the disclosure framework and considers the company’s impact on other stakeholders.
TPT has formulated three guiding principles in the transition framework: Ambition, Action and Accountability, and developed relevant elements under these principles:
- Ambition: Transition Foundations.
- Action: Implementation Strategy, Engagement Strategy.
- Accountability: Metrics and Targets, Governance.
TPT further explains the elements under each principle:
- Transition Foundations: Companies should disclose their overall goals, such as how they will combat climate change, how they will address carbon emissions reductions, and how they will address the risks and opportunities. In addition, companies should disclose the impact of transition plans on their business models and value chains, as well as the key assumptions and external factors in these plans.
- Implementation Strategy: Companies should disclose the actions taken in their business operations, products and services, and the impact of these actions on their financial position and cash flows.
- Engagement Strategy: Companies should disclose how they engage with value chains, regulators, investors and consumers.
- Metrics and Targets: Companies should disclose metrics that monitor transition plans.
- Governance: Companies should disclose how transition plans are integrated into their governance framework.
In addition, TPT divides these five elements into nineteen sub-elements and formulates relevant disclosure rules based on the characteristics of each sub-element. TPT has summarized and published some cases on its website for reference.
TPT’s Recommendations on Transition Plan Disclosures
In addition to developing a disclosure framework, TPT also provides advice on the disclosure of company transition plans. TPT recommends that essential information about the transition plan be included in the IFRS financial reporting process to improve disclosure and provide more detailed information to investors and regulators.
In addition, TPT also recommends that companies prepare an independent transition plan to detail the transition issues involved in the financial reporting process and provide some verifiable information. The transition plan will be updated no later than every three years to adapt to the company’s development and suit the adjustments to regulatory policies and disclosure requirements.
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