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Dec 04, 2023

UK’s Transition Plan Taskforce: ‘Companies need to be ambitious’ on net-zero

Ira Poensgen on how companies need to have plans in place to support ‘tidal wave’ of net-zero commitments

The UK’s Transition Plan Taskforce (TPT) – established by the UK government – grew out of conversations in the run-up to COP26. Now, as agreements are made at COP28 in Dubai, Ira Poensgen, technical lead of the secretariat for the TPT, talks about the challenges companies face in bringing their net-zero ambitions to reality and why investors want to see ‘ambition’ from the companies they own.

Poensgen is also deputy head of policy at the UK Centre for Greening Finance and Investment and deputy group policy lead at the Oxford Sustainable Finance Group. The TPT is made up of private and public sector experts and its asset-owners working-group members include representatives from Aviva, the Church of England Pensions Board, Legal & General, Scottish Widows and more.

Ira Poensgen, technical lead of the secretariat for the TPT
Ira Poensgen, technical lead of the secretariat for the TPT

What was the original purpose behind the TPT and how has that evolved?

The TPT started off with a government mandate, which really grew out of two things. First of all, companies have increasingly started to come to grips with the fact that they do face climate-related risks and opportunities – that’s what you really saw starting to emerge from the conversation around TCFD. Secondly, in the run-up particularly to COP26 with the ‘race to zero’, we saw a tidal wave of climate pledges, and companies starting to set ambitious carbon emissions reduction targets. The next question is obviously how are you going to reach the targets you have set?

At COP26, we then had a commitment by the government that the UK would take steps to become the world’s first net-zero-aligned financial center. As part of that, it announced that it would become mandatory for companies to publish any transition plans they have. The drive behind the TPT was really to develop a gold standard for what a good-practice transition plan actually looks like to inform regulatory requirements.

As to how the conversation has changed over the last two years, momentum is really picking up within the private sector, as investors are increasingly vocal on the issue. This is something they need to see from the companies they invest in because, ultimately, how a company is planning to grapple with the climate transition will be a key success factor in the future.

You’re also starting to see more momentum from policymakers and regulators: in the UK, the Financial Conduct Authority has committed to adopting ISSB and TPT as a complementary package in its listing requirements and the government will consult on rolling this out to large private firms as well. But there is also global momentum from the Corporate Sustainability Reporting Directive in Europe to the US Treasury coming out with some high-level voluntary principles around transition planning for financial institutions. You also have recent consultations in Singapore about transition planning for banks, asset managers and insurance companies. It’s a conversation that’s really starting to pick up.

What are some of the biggest challenges for companies getting started on their transition plans?

First, a transition plan, even more so than a TCFD report, requires a lot of engagement across the entire firm, because it’s about trying to develop a common vision across your company. And that requires having conversations with all the individual business units. The finance teams have to come in and provide estimates of what is financially feasible. You have legal teams that need to be involved when it comes to disclosure.

Many companies are learning that it does take some time to develop those structures internally – to have that type of cross-company conversation where you look at where you are now, what role you want to play in tomorrow’s economy and what you need to do now in order to get there.

That’s quite a strategic conversation, which requires engagement and leadership buy-in right from the very top. We recommend that companies start from having the conversation about their transition strategy with the board and making sure this is something the C-suite takes an active role in.

Transition planning also opens up a whole range of opportunities. Going through that complex process of building buy-in and building a common vision internally, actually becomes a really powerful tool for business transformation as well. It is a big enabler in being able to deliver on your climate ambition afterwards.

The second big challenge is about getting comfortable with some of the uncertainties around transition planning. Companies are having to develop plans that are often based on imperfect data: the Scope 3 emissions challenge is one that’s commonly mentioned, for example. Companies sometimes don’t currently have visibility into their full supply chains. And it’ll take time to build that up.

In addition, if they think about a forward-looking climate strategy, there will be dependencies, for example on regulation or on how certain technology costs evolve. Companies can make either better or worse assumptions about how that’s going to evolve, but they don’t have guarantees.

What we have firmly baked into our recommendations is that in a transition plan, a company can set out ambitious targets, while also making clear that there are bits and pieces they don’t have perfect control over. But that level of uncertainty is something companies are currently not super-comfortable with. But everyone’s in the same boat. No one has perfect information at the moment, and transparency is really your best friend here.

Companies need transition plans as well as climate targets

Do you see investors looking for ambitious targets?

I think so. They need companies to be ambitious on this because it’s the investor that starts to have an exposure to how the financial system is going to evolve overall. Even if certain risks don’t materialize on the balance sheet of an individual firm, if the entire economy is heading in a direction, with climate warming causing massive trade disruptions, with migrant movements, pressures on human livelihoods, the financial system as a whole is not going to be isolated from those effects.

What we hear is that investors have a strong interest in making sure companies are taking the steps now to think strategically about how they’re going to navigate the challenges that are coming down the line from climate change, and what role they are going to play in helping to develop the solution.

What advice can you offer companies on how often they should review their transition plan?

Within our final framework, we make two recommendations. We recognize that a lot of the information you’re putting in your transition plan is likely to be material to a lot of stakeholders that look at an annual report. So we recommend that information about your objectives, your metrics and targets, your strategy and your governance systems around your transition plans should be integrated into your reporting against TCFD now, or ISSB in the future. In addition, it can be good practice to also develop a stand-alone plan where you might bring in additional nuance and information that might not hit the materiality threshold of the annual report, but that you think is still relevant to explain your transition strategy to your stakeholders. And if you do publish that stand-alone report, we recommend is updated at least every three years.

Garnet Roach

An award-winning journalist, Garnet Roach joined IR Magazine in October 2012, working on both the editorial and research sides of the publication. Prior to entering the world of investor relations, her freelance career covered a broad range of...