GRIP attended the second City & Financial Annual Summit on Climate Transition Plans for Financial Institutions and Listed Companies. The focus is on shifting from design to implementation of the Transaction Plan Taskforce (TPT) Framework and sector guidance.
The panels provided practical, detailed guidance about the steps that financial firms and companies need to be taking now in order to ensure that they are prepared to meet regulatory expectations and produce transition plans of the required standard.
This article focuses on the keynotes from Baroness Vere of Norbiton, Treasury Lords Minister, HM Treasury; Sacha Sadan, Director of ESG, FCA; and Vanessa Havard-Williams, Chair, HM Treasury Transition Finance Market Review, and Consultant, Linklaters.
UK Government Green Strategy
At COP26, Rishi Sunak, in his role as UK Chancellor, announced that financial sector firms and listed companies will have to publish clear, deliverable transition plans in 2023, setting out how they will decarbonise and transition to net zero.
Following that announcement, HM Treasury launched a Transition Plan Taskforce (TPT) in April 2022 to provide companies with guidance of what transition plans should look like and, in October 2023, the TPT published its Disclosure Framework and Implementation Guidance for gold standard transition plans.
The TPT Framework was designed to be consistent with, and build on, the International Sustainability Standards Board’s (ISSB) IFRS S2 standard, which sets out specific climate-related disclosures. It is also aligned to Glasgow Financial Alliance for Net Zero (GFANZ) guidance. This is to make the TPT Framework consistent with other international frameworks.
Baroness Vere of Norbiton, Treasury Lords Minister, HM Treasury, said: “The international picture shows that there’s a significant momentum behind transition plans.” She added that it was important to maintain the momentum and head in the right direction to get “lots of interoperability”, adding that the “UK is leading the G7 on transition plans”.
In line with the TPT, the FCA is consulting on guidance for listed companies. Baroness Vere said the government intends to ensure regulation for listed and unlisted firms is “heading in roughly the same direction” to avoid a “massive gap” in requirements between the two.
Baroness Vere also announced that the government have commissioned the Transition Finance Market Review (TFMR). This will be led by Vanessa Havard-Williams and the report will be ready in July. The remit of the TPT has been extended to work with the TMFR. Baroness Vere said the review will be a “game changer to understand the market”.
The event’s chair, Gavin Templeton, Managing Director, Pollination, called Baroness Vere’s keynote: “A clarion call for clarity and focus on opportunity.”
Transition plans – a regulatory perspective
Sacha Sadan, Director of ESG at the FCA, spoke about the role of the regulator and how it is committed to drawing on the TPT Framework as it develops disclosure expectations for listed companies, asset managers and FCA-regulated asset owners. It is also working alongside Vanessa Havard-Williams on the Transition Finance Market Review (TFMR) which is due to report in July 2024.
In Primary Market Bulletin 45, the FCA set out its intention to consult this year on rules and guidance for listed companies “to disclose in line with the UK-endorsed ISSB standards and the TPT Framework as a complementary package.”
Sacha Sadan, Director said, “Companies will need to think strategically about how they respond and contribute to the transition to a low emissions, climate-resilient future.
“The Disclosure Framework is an important step in this transformation. It will help companies communicate high-quality, consistent and comprehensive information on their transition plans to investors, giving them the confidence to finance the transition.
Sacha Sadan encouraged listed companies and regulated firms to engage early with the Framework – and get started on their transition plans, “your first Transition Plan may not be the best but it will be a start.”
As consumer regulator, Sacha Sadan reminded the conference that the from July 31, 2024, firms can begin to use a sustainability investment label.
Integrating transition finance into transition plans
The government commissioned the Transition Finance Market Review (TFMR) to explore how the UK can become the best place in the world to raise capital to support a good global net zero transition.
Last month, the TPT’s mandate was extended by HM Treasury until at least July 31, 2024, with a possible further extension of three months to October 2024, in order to support the TFMR.
As the global discussion on transition plans has progressed over the last year it has become clear that credible transition plans are expected to play a central role in development of high-integrity transition-finance approaches. Beyond the UK, many global initiatives including Singapore and Japan, are now making progress following the UK’s TPT.
In the case of financial institutions, Vanessa Havard-Williams, Chair, HM Treasury Transition Finance Market Review, and Consultant, Linklaters said: “We can already see demand for the growth of information disclosure in transitions plans and strategies.” She gave some examples:
- lenders and investors are able to support their clients in executing those plans and keep targets under review;
- for asset managers, as part of stewardship, how the lines against the institutions’ own targets help set decarbonisation pathways;
- in the case of banks, as part of onboarding, assessment of credit risk and pricing.
The TFMR wants to identify the following areas of workstreams over the next 4-5 months:
- Definition of transitional finance
- What’s the purpose of transitional finance?
- What’s in scope?
- What does it mean to different stakeholders and can this be coalesced around core building blocks?
- What’s the role of credibility and integrity in the provision of transition finance?
“In relation to standards and frameworks, there’s a lot of work that’s already been done and we don’t want to replicate that work but look at whether there are any gaps in the guidelines that the markets need in order to structure and issue robust instruments.
“The review will focus on how we can all engage to make the most of the opportunities for a UK market to facilitate transition finance to support our global climate and nature goals”, said Havard-Williams.
The Transition Finance Market Review will report to the UK Government in July 2024. In the coming weeks it will be launching a “Call for evidence” asking for industry input. Havard-Williams said: “Please look out for that and reply. Constructive feedback is lovely, any feedback is lovely!”
