Against the backdrop of global commitments on climate change, including the UK government’s commitment to become a net-zero economy by 2050, more and more companies are setting their own climate-related goals and targets. In a recent survey of the first 50 FTSE 100 December annual reporters’ transition plan disclosures – part of Deloitte’s Corporate Reporting Insights series – 98% of companies were found to have at least one climate-related target. 

Investors and regulators are now increasingly turning their focus to the actions and plans a company has in place to ensure their climate-related targets can be met, asking “Does the company have a credible climate transition plan?”.

This article explores the topic of climate transition plan disclosures, setting out current UK disclosure requirements and how those disclosure requirements are expected to evolve in the future.

What is a climate transition plan?

The International Sustainability Standards Board (ISSB) defines a climate-related transition plan as “an aspect of an entity’s overall business strategy that lays out the entity’s targets, actions or resources for its transition towards a lower-carbon economy, including actions such as reducing its greenhouse gas emissions”. 

What are the current UK disclosure requirements relating to climate transition plans?

In 2021, the Task Force on Climate-related Financial Disclosures (TCFD) published Guidance on Metrics, Targets and Transition Plans and updated its Guidance for All Sectors to include a recommended disclosure for organisations to “describe their plans for transitioning to a low-carbon economy”. 

Companies required under the Financial Conduct Authority's (FCA) Listing Rules to make a statement as to whether they have made disclosures consistent with the TCFD’s recommendations must consider the updated guidance in doing so.

What is the direction of travel?

This year, the UK government re-emphasised its support for UK adoption of the ISSB’s IFRS Sustainability Disclosure Standards and confirmed that the Secretary of State for Business and Trade will decide on the endorsement of the IFRS Sustainability Disclosure Standards to create UK Sustainability Disclosure Standards by July 2024. 

The FCA has also set out its approach to implementing the first two IFRS Sustainability Disclosure Standards (IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related disclosures) into its disclosure rules for listed companies. 

Entities in scope of UK-endorsed IFRS Sustainability Disclosure Standards – a scope yet to be confirmed – will need to provide more granular disclosures on any targets and plans to transition to a low-carbon economy compared with the TCFD recommended disclosures. These more granular disclosures are outlined in IFRS S2 Climate-related Disclosures.

Both the UK government and FCA have also stated that they will consult specifically on transition plan disclosures, drawing on the output of the Transition Plan Taskforce (TPT). 

What are the next steps? 

The UK government is expected to consult on the introduction of transition plan disclosures for the UK’s largest companies this autumn. To supplement its Disclosure Framework, the TPT is currently developing sector-specific guidance and is planning to consult on this guidance in November 2023.

The FCA has stated that it expects to consult on transition plan disclosure guidance at the same time as consulting on its policy approach to the ISSB standards. This is expected to take place in the first half of 2024. 

What action should my company be taking now?

Companies in scope of the FCA’s Listing Rules should assess their existing disclosures to ensure information is consistent with the TCFD recommended disclosures on transition plans. 

Given the direction of travel, early engagement on climate transition planning will be key, for example, by establishing clear lines of responsibility and reporting for the development, implementation, and monitoring of a transition plan. Evaluating IFRS S2 and the TPT Disclosure Framework will also assist in understanding where further disclosures may be required in the future. 

More information on how to develop a transition plan can be found here. 

Alison Dundjerovic, Director, Audit and Assurance, Deloitte UK