Response to the UK Transition Plan Taskforce Framework and Guidance Consultation

28 February 2023

Consultation response

In its response to the UK Transition Plan Taskforce Framework and Guidance Consultation, Finance Watch emphasises the importance of the double materiality approach and of specific disclosure requirements (Scope 3, engagement, offsetting etc.) where a lack of ambition could endanger the original ambition for transition plan to become key building blocks for delivering a net zero future.

For transition plans to serve as a key building block for delivering a net zero future, the relatively narrow definitions of primary users and materiality that underpin ISSB disclosure standards and general purpose financial reporting will need to be broadened to meet the needs of the diverse set of stakeholders that will use transition plans. We urge the TPT, as it considers how best to build on the ISSB framework, to do so by incorporating ESRS definitions, which would meet those needs and at the same time increase interoperability.

In particular, net zero transition requires a double materiality logic that includes the impact of the entity on the outside world, which is the only meaningful perspective to manage environmental impacts of company´s operations (and with this, the transition risks inherent in the company´s operations or portfolio – in case of financial institutions) and effectively achieve decarbonisation outcomes in the real world. Transition plans have different users and uses from financial reports. An approach that includes both financial and impact materiality is essential if transition plans are to support a timely shift to net zero.

Other points made in the consultation response include:

  • We strongly support the proposal to require absolute gross GHG emissions reduction targets for Scopes 1, 2 and 3.
  • Companies should always disclose separately carbon credits used as offsets for their GHG emissions or as a means to reach their GHG emission reduction targets, as well as explain the role of carbon credits in their climate change mitigation policy and objectives. Carbon offsetting outside of the value chain should never be accounted for in the net-zero effort of companies nor in the determination of whether they have achieved their net-zero targets.
  • For financial institutions, engagement disclosures should refer to product design (e.g. the use of climate covenants and pricing) and stewards