Transition Plans

147.  The UK has a strong reputation as standard setter for finance, providing credibility and predictability to financial markets. Building on this tradition, setting clear standards in the green finance space will provide the required certainty and clarity, catalysing further action, both in the UK and globally, and underline the UK's ambition as a leading green financial centre. Underpinned by the Bank of England's work to ensure the resilience of the financial sector to the risks from climate change and ensure the financial system can play its role in supporting the transition, clear standards will allow us to maximise the opportunities of the global and domestic shifts towards clean growth.

148.  One area where the UK has done pioneering work is on transition plans. Across the economy, numerous firms have set out their ambition to reach net zero. But early plans for how they intend to reach that target have varied in quality and often lack detail on the short-term actions that are being taken to achieve these targets. This makes it difficult to assess the credibility of individual plans, or to compare approaches to transition planning across multiple entities. Investors are calling for disclosure of these to better understand how to allocate their capital in a way that is aligned with net zero, across the entire economy, and for firms of all sizes. While the Financial Conduct Authority (FCA) has mandated asset managers/owners and listed companies to include comply or explain requirements to publish transition plans since 1 January 2022, there is currently no policy in place to mandate disclosure of transition plans for private companies (e.g. those that would be regulated under the Companies Act). For transition plans to have the intended effect of providing information for investment purposes, they need to become a mandatory requirement for all firms that are in scope for the TCFD requirements, including private companies.

149.  The need for credible and easy-to-understand transition plans goes well beyond the largest financial firms and corporates. Small and medium-sized enterprises (SMEs) are increasingly experiencing pressure from customers - including mid-size and larger corporates - to demonstrate their green credentials and their plans to transition to net zero. However, in the absence of industry standards they may have to provide different information to each set of stakeholders. A standardised reporting framework could assist SMEs and reduce their administrative burden but, at the moment, there is no coherent framework for SMEs. Government should look to facilitate and reduce the transaction costs for SMEs providing the relevant information by setting out guidance that considers the appropriate format for SMEs and is proportionate - requirements should apply more extensively and earlier to large firms before being rolled out to smaller firms. Moreover, consideration should be given to how requirements may need to be tailored for smaller firms to minimise the burden on firms that have less capacity to meet them.

150.  The UK launched the Transition Plan Taskforce (TPT) in 2022, which is a world leading attempt to set the gold standard for firm-level transition plan disclosure across firms of all sizes. The TPT recently published its draft Framework and Implementation Guidance for consultation, taking the approach of looking beyond entity level decarbonisation and focus on action in the real economy. In addition to providing information to investors, transition plans can highlight any misalignment between commitments and actions, allowing regulators and consumers to call this out and create market integrity and consumer protection. The UK should continue its pioneering work in transition plan disclosures led by the UK Transition Plan Taskforce (TPT), share them internationally, and once more developed, the TPT's standards need to become mandatory for both listed and private firms to ensure comparable disclosure standards across the economy, in line with previous government commitment.