What is the UK Disclosure Framework for Net Zero Transition Plans?
The UK Disclosure Framework for Net Zero Transition Plans is a set of guidelines that companies can use to report on their efforts to transition to net-zero emissions and support the transition to a low-carbon economy. The framework was developed by the Taskforce on Climate-related Financial Disclosures (TCFD), an organisation established by the Financial Stability Board (FSB) to promote consistent and transparent reporting of climate-related risks and opportunities by companies.
The framework comprises four pillars: governance, strategy, risk management, and metrics and targets.
- The governance pillar focuses on how a company manages its transition to net-zero, including its governance structures, policies, and processes.
- The strategy pillar covers a company's long-term plans for transitioning to net-zero, including its goals and strategies for decarbonising its operations and products or services.
- The risk management pillar covers a company's efforts to identify, assess, and manage the risks and opportunities associated with the transition to net zero.
- The metrics and targets pillar covers the metrics and targets a company uses to track and report on its progress towards net-zero.
The UK Disclosure Framework for Net Zero Transition Plans is voluntary. Still, it is intended to provide companies with a consistent and transparent way to report on their efforts to transition to net zero and support the transition to a low-carbon economy.
Which companies must report on the UK Disclosure Framework for Net Zero Transition Plans?
The UK Disclosure Framework for Net Zero Transition Plans will become mandatory for the following organisations:
- UK listed companies
- UK financial institutions
As stated, the UK Disclosure Framework for Net Zero Transition Plans is voluntary, so companies are not required to report under the framework. As such, companies actively working to decarbonise their operations and support sustainability may choose to report under the framework to demonstrate their commitment to addressing climate-related risks and opportunities.
Investors, customers, and other stakeholders should also prompt companies to report under the framework to ensure consistent and transparent sustainability reporting. In addition, regulatory bodies or industry groups shall urge or require companies to report under the framework to promote sustainable and responsible business practices.
What is the UK Disclosure Framework for Net Zero Transition Plans timeline?
- November 2021: UK's Transition Plan Taskforce (TPT) announced at COP26.
- November 2022: Publication of UK TPT Disclosure Framework and Implementation Guidance, public consultation begins.
- February 2023: End of public consultation on the Disclosure Framework and Implementation Guidance.
- July 2023: Status update published.
- October 2023: Final Disclosure Framework and Implementation Guidance published.
- November 2023: Sector-specific guidance consultation begins.
- Early 2024: Final sector-specific guidance published.
Who will enforce it?
The UK Financial Conduct Authority (FCA) will oversee the plan and set up a task force to implement it. The FCA will also oversee company compliance with this legislation.
What are the framework requirements?
- Companies in scope are required to define and publish their net-zero transition plan.
- The TPT recommends that a good practice transition plan should cover:
- A company's targets to mitigate, manage and respond to the changing climate and to leverage opportunities of the transition to a low GHG economy (including GHG reduction targets)
- Short, medium and long-term actions the company plans to take to achieve its targets
- Measures to address material risks to, and leverage opportunities for, the environment and stakeholders (i.e. workforce, supply chains or customers) which arise as part of these actions
- Periodic reporting on a transition plan.
What are the next steps?
- The Disclosure Framework and Implementation Guidance are open for public consultation until February 2023.
- The UK government plans their implementation within 2023.
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