The new Labour Government is committed to transition plans as its 2024 manifesto makes clear: “Labour will make the UK the green finance capital of the world, mandating UK-regulated financial institutions – including banks, asset managers, pension funds, and insurers – and FTSE 100 companies to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement.”
Recently, we brought together heads of environmental, social and governance (ESG) and sustainability from a range of sectors, from both public and private organisations, to discuss their approach to transition planning, as well as the challenges and opportunities. We also look at the UK's transition planning agenda, where the greatest engagement is taking place, and outline three broad categories of organisational readiness for transition.
Transition plans (TPs) are strategic roadmaps that outline how an organisation will transition its operations and business models to achieve net-zero carbon emissions. They include detailed targets, timelines and actions to reduce carbon footprint and address climate-related risks, as well as the financial, operational and technical changes needed to support this. By disclosing these plans, organisations demonstrate their commitment to sustainability and transparency to their wider stakeholder community.
The Transition Plan Taskforce (TPT), which was set up by the last government as a task and finish group of green finance professionals, has developed a range of tools to help organisations adopt transition planning:
For a further refresher on transition plans and why they are relevant for organisations of all sizes, both in the public and private sector, read Transition Plan Taskforce - the final framework is here.
The work of the Transition Plan Taskforce has now been integrated into the IFRS Foundation’s International Sustainability Standards Board (ISSB), who will take ongoing responsibility. In the UK economy, organisations fall into three broad categories of readiness:
It's still early days for the new administration and, as yet, there's limited further information from HM Treasury or others regarding how this high-level agenda will be realised over the expected five-year term of the new Government.
So far, we’ve seen the greatest engagement with the transition plan agenda from our financial services clients. This sector was the early target of increased regulation from the Financial Conduct Authority and, as such, has had the longest exposure to the approach. The TPT’s intention is that transition plans cover all organisations in our economy, and it has developed sector-specific guidance. Labour has also chosen to focus on financial services and the largest listed companies in the UK. We'll need to wait for further consultations to understand how requirements will be applied beyond the scope of its manifesto.
From feedback we’ve received, the work done by the TPT has been greatly appreciated and the focus resonates well. This is namely a concentration on board-level buy-in and not a reductionist tick-box exercise which risks being delegated to junior staff and potentially forgotten.
As our work currently focuses on the first category of organisations – those with advanced awareness – the learnings from our forum provide valuable insight into how organisations, both public and private, are engaging and shaping their strategies.
1 Board buy-in
All agreed that their boards were actively bought in, pushing forward the transition planning agenda within their organisations. While our attendees were likely to be in the first category of TP readiness, this demonstrates that, across a wide range of UK industry sectors, organisations are motivated to make change driven by a clear TP.
2 Internal discussions
It was noted that nature and wider societal impacts were part of their organisation's internal discussions. The lack of a common, fungible metric (such as carbon for scope assessments), however, was one barrier to the development of an agreed approach to understanding, reporting and changing the organisation's impact on nature.
Few thought that a shared language for nature was likely in the near future. Some have thought deeply about adaptation to, not just the mitigation of, climate change on their business. And most worried that the Department for Environment, Food and Rural Affairs (Defra) has a less impactful voice around the Cabinet table than some of the other economic departments.
3 Close ties with EU to reduce friction
Our attendees hoped that the new Government would focus on improving the UK’s relationship with the European Community. While Labour has made clear that the UK won't be rejoining key aspects of the EU, financial services and climate policy are closely tied to our near neighbours. And for many UK organisations, European companies form a major part of their supply chains.
Prior to the change in government, the UK was developing its own Green Taxonomy. The hope is that EU and UK approaches to topics, such as green taxonomy, can remain closely aligned (even if they are likely to be separate approaches). Reducing friction will be key to maintaining efficiency.
4 Engaging with staff, suppliers and customers
Attendees noted the importance of bringing your employees, customers and those in your supply chain with you on the transition planning journey. A clear corporate advantage of staying ahead on transition planning is the interest and engagement this subject drives with staff – especially younger sections of the workforce, apprentices and graduates. In the competitive recruitment market, potential employees want to know if prospective employers have clear and obtainable climate goals.
5 Financial buy-in for external skills
Most organisations don't have all the requisite skills in-house so the use of consultancies is common, often with multiple consultants to focus on specific areas. Given the specialist nature of the work, costs can rack up quickly, requiring clear prioritisation and focus on delivering additional value. Most business leaders are acutely aware that such work can easily be deemed as non-core so board-level buy-in, especially the CFO or finance director, is key.
Finance teams are key to transition planning – some aspects of transition planning may be led directly by them. Even where this is not the case, the finance team have a deep structural understanding of the organisation that makes their buy-in a key to successful delivery.
Within the ESG and sustainability community, there is deep engagement with transition plans and the change they seek to demonstrate to investors and the public at large. The challenge for the UK economy will be to ensure that organisations of all sizes – including the vast range of public and third sector bodies – are also brought along on the journey from disengagement to board buy-in and ready to deliver on the plans.
To find out how we can support you with your transition planning, please contact us.
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