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Society responds on the proposed UK Transition Plan disclosure framework

The IR Society response supports the proposals but calls for more flexibility in the way transition plans are published so that companies are permitted to include them in their annual report or other relevant reports (eg sustainability or climate reports), instead of being required to publish them as standalone reports.

The Investor Relations Society

5th Floor, 30 Coleman Street

London, EC2R 5AL

 

Amanda Blanc – co-Chair Transition Plan Taskforce

Baroness Penn – co-Chair Transition Plan Taskforce

(Submitted via email to secretariat@transitiontaskforce.net)

 

28th February 2023

 

Dear co-Chairs Blanc and Penn,

Consultation on the Transition Plan Taskforce’s Disclosure Framework and Implementation Guidance

Thank you for giving us the opportunity to comment on the UK Transition Plan Taskforce (TPT)  consultation on your sector-neutral disclosure framework and accompanying implementation  guidance, containing  recommendations for companies and financial institutions in the UK on how to develop credible and robust climate transition plans. This response is on behalf of the UK’s Investor Relations Society (‘the IR Society’).

The IR Society represents members working for publicly listed companies and consultancies to assist them in the development of effective two-way communication with the markets and to create a level playing field for all investors. It has over 850 members, drawn mainly from the UK, including the majority of the UK FTSE 100 and many of the FTSE 250 constituents, but also including some from companies listed overseas.

The IR Society’s mission is to promote best practice in investor relations; to support the professional development of its members; to represent their views to regulatory bodies, the investment community and Government; and to act as a forum for issuers and the investment community.

We recognise this consultation builds on the TPT’s 2022 call for evidence, to which the IR Society responded, the latest consultation including, helpfully in our view:

  • the disclosure framework;
  • detailed implementation guidance; and                                                                                                                                                                                                                   
  • a technical annex that details alignment with both TCFD and ISSB S2.

We agree with the assertion that credible transition plans will create transparency as to how companies will meet their net-zero targets and enhance accountability to stakeholders, which will enable investors to make better informed capital allocation decisions and will support the UK’s transition to net zero. We are pleased to see that the TPT expects a good practice transition plan to cover an entity’s ambitions to leverage the opportunities of the transition to a low GHG and climate resilient economy, in addition to the mitigation, management and response to the risks presented by the changing climate. We support the TPT’s proposed disclosure framework, which is intended to help corporates develop rigorous transition plans to support their net zero commitments, subject to our concerns about flexibility around location of reporting and clarification that any future sector-specific guidance would be non-mandatory.

Location of reporting

The draft TPT disclosure framework recommends that a transition plan is published as a standalone document that is updated at least triennially, with annual disclosure of material information included in the Annual Report And Accounts (ARA) (see page 12 in the framework). The implementation guidance then provides more detail, recommending progress against the plan and material information and updates be included annually in the ARA as part of annual TCFD- or ISSB-aligned disclosures.

In our previous response, we supported this recommendation for annual disclosure to be located in the ARA, arguing it is important that the ARA should remain the single source for all key disclosures. This would help to ensure that the ARA remains a cohesive and comprehensive narrative, with appropriate cross-referencing to the transition plan disclosure elsewhere, whilst allowing companies to publish more detailed plans without over-expanding their ARA.

However, we believe reporting entities should also be given the flexibility to choose between including transition plans in their entirety within the ARA (which may suit many smaller reporting entities), or also to publish them in, for example, their sustainability/ESG reports, climate reports or as separate standalone reports. We acknowledge that presenting transition plans in a standalone document could enable users more easily to analyse and compare plans across entities, and possibly facilitate entities being held to account. However, in light of the technologies available to assist with such analyses/comparisons (including data mining and machine reading software), we do not think this potential benefit justifies this additional reporting burden of all corporates having to publish a completely separate document, particularly in respect of companies whose transition plans are relatively simple.

It is also worthy of note that, where transition plans are genuinely integrated into business strategy, relevant disclosures will be spread across the ARA rather than in an entirely separate section. It may therefore be necessary to have a key showing where the different parts of the transition plan can be found within the ARA.

Non-mandatory Sector-specific guidance

As we indicated in our previous response, in our view any sector-specific guidance (and metrics) should be non-mandatory. Whilst this is implied in the “TPT outputs” on p7 (as per the passage below), it is not entirely clear from the consultation papers that this is the case, so we would ask for this to be clarified in the final version. 

“TPT outputs” (p7): Sector guidance:

In 2023 the TPT will publish a range of sector guidance, starting with an overview of sector-specific metrics from existing guidance which can supplement the  recommendations of the TPT Disclosure Framework. More detailed sector guidance will be published later in 2023, building on best practice guidance and new research.”

Support for TPT proposed approach

We also highlight below some of the aspects of your proposals that are in line with our previous submission and that we continue to support.

  1. Costs. The framework clearly references the need to consider and disclose, where possible, how transition plan steps/actions will be financed and their impact on financial position/cash flow (with qualitative information given if the reporting entity is unable to provide quantitative data).
  2. ISSB/TCFD Interoperability. The TPT has designed its framework to be consistent with ISSB and TCFD disclosures, and helpfully illustrates in the detailed mapping assessment set out in TPT’s technical annex where further granularity and specificity has been added to meet the needs of the UK market. We are aware of the evolving nature of the ISSB standards and therefore the TPT framework may also need to evolve.
  3. Non-mandatory sector-neutral metrics. Reporting entities can use their own judgement to select whichever of the sector-neutral sub-elements are relevant to their sector/business model under section 4 (with the exception of carbon credits targets and metrics). We support this exception on the basis that we hope this will assist in moving towards actual reduction and eventual cessation/ elimination of physical emissions, rather than relying on removals/offsets (these should always be viewed as a method for dealing with residual emissions rather than as an alternative to emissions reduction efforts).
  4. Timeframes for metrics/targets. We agree that the timeframes for any particular metrics and targets should be left to the discretion of reporting entities, which is effectively what the TPT proposes (albeit with the short term set as 3 years on a comply or explain basis, and interim targets/milestones for longer term targets required to be over the next 5-10 years - see paras 4.1-4.3).
  5. Verification. We agree external third-party assurance should not be mandated, allowing reporting entities to determine whether to have independent assurance, taking account of their own circumstances.
  6. Materiality. We agree that this should be aligned to the definition around financial reporting, ie reporting entities will disclose any information that, if omitted, misstated, or obscured, could reasonably be expected to influence decisions that the primary users of general purpose financial reporting make on the basis of that reporting.

We hope you find these comments useful. Please do not hesitate to make contact if you have any questions.

 

Your sincerely,

 

 

Nigel Pears

Chair of the Investor Relations Society’s Policy Committee

(Email: enquires@irsociety.org.uk, Tel: + 44 (0) 20 7379 1763)

Published 28 February, 2023