At COP26 last year, former UK Chancellor Rishi Sunak announced that all listed UK companies and financial institutions will be expected to publish net zero transition plans from 2023. The announcement was timely given that three Intergovernmental Panel on Climate Change reports published in the last year highlight that the window of opportunity to avoid global climate disaster is closing rapidly.
The recently established UK Transition Plan Taskforce (TPT) will define what should be included in a ‘gold-standard’ transition plan, setting regulators up to play a crucial role in our planet’s future health. In anticipation of the TPT’s guidance, EY examined what the FTSE30 companies have published about how they will transition to net-zero.
The three main takeaways from our research were:
- Only five of the 30 publications examined could be considered transition plans. The remainder were a blend of ESG reports, climate action plans, or sustainability performance reports. While these publications are valuable, they don’t provide the detail that would explain how a business will transform to net zero.
- Of the remaining 25 publications, just over half (15) mentioned which climate disclosure regimes they would align themselves to. Making disclosures demanded by the Taskforce on Climate-Related Financial Disclosures or the Transition Pathway Initiative provides clarity on a business’s preparedness for the transition and the potential impact that climate change will have on their company.
- Meanwhile, just one of the 30 FTSE companies provided any business plan or explanation of how they would fund the transition – a crucial piece of information for any investor.
From working with clients, we believe that a successful net-zero transition plan requires a number of key elements:
- A clear starting point of a business’s current emissions baseline and where these emissions come from (e.g. from which activities, locations etc.)
- A net-zero target, and the interim goals which will help the business reach its target
- A roadmap that shows the specific changes the business will make to reach net zero
- A business case for the transition, including where funding will come from
Other less tangible issues that a good transition plan should cover:
- It should be value-led, highlighting opportunities for the business to build long-term value as well as factoring in the cost of transition.
- It should be based on the principle of just transition. This means meaningful, ongoing engagement with all stakeholders, including upskilling and access to green jobs, alignment to sustainable development goals and ensuring that nobody is left behind.
- It should highlight any organisational behaviour change, including with its customers and suppliers and consider how it will achieve that change.
Ultimately, implementing a gold-standard transition plan will allow businesses to accelerate climate action in a way that investors, employees, and society can get behind.
Rob Doepel, EY UK&I Managing Partner for Sustainability, believes: “To effect change, all stakeholders must understand their role in the transition through regular communication and collaboration. Building a gold standard net zero transition plan is complex, and we need all parties to support one another. No one holds a definitive blueprint; we need to design it together.”
For more information on how we are supporting clients transition to net zero visit EY Carbon.