UKSIF response: DESNZ transition plan requirements consultation
UKSIF is pleased to respond to this important consultation on the introduction of climate transition plan requirements for certain companies in the UK. Should we see delivery of these requirements across the wider economy in the UK, implemented through an efficient and proportionate policy approach, we expect a number of tangible economic benefits over time for companies and investors and more broadly critical progress made towards government’s stated ambition for the UK to be a ‘world leader in sustainable finance.’
A summary of the main points in our consultation response are the following.
Summary- Main points in UKSIF’s response:
- Disclosure of transition plans: We recommend a ‘pathway approach’ towards mandatory disclosure (‘Option 2’) for in-scope companies to maximise the benefits of transition plans for users and preparers, while promoting proportionality in government’s rules. An initial ‘comply or explain’ period (‘Option 1’) would apply at first for entities and the length of this period would vary depending on the type of company in question.
- Scope of requirements: The UK’s Task Force on Climate-related Financial Disclosures (TCFD) regime offers a positive, familiar starting point for government to consider with transition plans initially rolled out to large listed and large private companies before extending to wider groups (e.g. ‘economically significant’ entities).
- Role of the TPT’s Disclosure Framework: For companies within scope, requirements should encourage companies to actively consider the TPT’s Framework and to report against its components as far as is possible. Expectations could be strengthened here over time.
- Frequency and location of transition plan reporting: We support publication of corporate transition plans on a triennial basis, in line with the TPT Framework’s recommendation, and would like to see these published through a standalone report. To provide necessary flexibility for preparers, we suggest the inclusion of cross-referencing and signposting provisions in the final rules which could help reduce duplication across some corporate reporting.
- Climate alignment targets: There should be an emphasis on in-scope companies disclosing plans that are based on science-based pathways aligned with the Paris Agreement goals, rather than a specified temperature alignment objective. Linked to this, policymakers should focus on supporting companies to engage in high-quality transition plan disclosure versus considering provisions on the implementation of plans by corporates.
- Transition plan dependencies: Requirements should very clearly provide necessary flexibility for preparers to disclose a full range of transition plan dependencies, which we expect will carry much value for preparers, users of plans, policymakers, and other groups.
- Role of UK’s SMEs: There are opportunities for government to actively support UK SMEs, which continue to receive climate-related data requests from different parties, sometimes relating to these groups’ own transition plans. Government, alongside wider stakeholders, should encourage SMEs to adopt the upcoming UK SME Voluntary Emissions Standard which we hope can support this group respond to sustainability information requests.
- The UK’s wider reporting landscape: Transition plans can be effectively integrated within the UK’s upcoming sustainability reporting landscape and wider financial reporting. This process can be facilitated by simplification to existing reporting, alongside wider steps such as a smooth transition in the coming years from TCFD-aligned rules to the UK’s Sustainability Reporting Standards (SRS) which will over time assist with reporting pressures for companies.