3. Engagement Strategy

Explore the Disclosure Recommendations

Element 3 provides the Engagement Strategy of the entity’s transition plan.

An entity shall disclose how it is engaging with its value chain, industry peers, government, public sector, communities, and civil society in order to achieve the Strategic Ambition in its transition plan. This includes information on any engagement activities it is undertaking or planning to undertake to manage the impacts and dependencies of the transition plan on its stakeholders, society, the economy and the natural environment (as identified under 1.1 Strategic Ambition).

This information will help users understand how the entity is leveraging its resources and relationships, and strategically pursuing opportunities to engage, influence and collaborate with others to achieve its Strategic Ambition.

Specific considerations in these areas for each of 3.1-3.3 are set out below. In some cases, these are accompanied by examples of how entities are currently disclosing related information in transition plans or other their wider climate-related disclosures.

3.1 Engagement with value chain

An entity shall disclose information about any engagement activities with other entities in its value chain that it is undertaking or plans to undertake in order to achieve the Strategic Ambition of its transition plan.

3.1 Disclosure Recommendations

As part of this, an entity shall disclose:

a. an explanation of how the entity prioritises engagement activities in order to maximise their contribution towards achieving the Strategic Ambition of the entity’s transition plan; this may reference key assumptions and external factors disclosed under 1.3. Key assumptions and external factors

b. a description of current and planned engagement activities; for financial services entities this may include engagement and, where relevant, other stewardship activities, with investee companies, loan clients and relevant financial market intermediaries

c. a description of escalation processes or criteria in place to manage instances where engagement activities do not lead to the desired changes

d. the expected principal contributions of its activities towards achieving its Strategic Ambition.

3.1 Why is this included?

An entity will often depend on actions by other actors in its value chain to achieve its Strategic Ambition. Users will therefore value information about how an entity is engaging with its value chain, including with suppliers, customers, and portfolio clients, in order to encourage the required actions.

To inform their understanding and support their assessment of an entity’s value chain engagement efforts, users will want to understand the importance of engagement in achieving its Strategic Ambition and will need sufficient information about how the entity prioritises engagement, what engagement activities the entity is undertaking, and how the entity will respond if these activities do not lead to the desired outcomes. This will help users assess the credibility and effectiveness of the entity’s engagement strategy.

3.1 Disclosure considerations

In order to disclose effectively in accordance with 3.1 an entity may wish to consider the following.

Depending on the broader context of their transition plan, entities may decide to prioritise engagement efforts in different ways (3.1a). For example, entities may disclose the extent to which they prioritise engagement with:

those that account for the largest proportion of the entity’s Scope 3 GHG emissions;
those over which an entity has the greatest degree of leverage to influence actions;
those that are relevant to the most business-critical processes;
those that have control, responsibility or influence over key external factors on which achievement of the Strategic Ambition of the transition plan depends (as disclosed under 1.3 Key assumptions and external factors (e.g. suppliers who are developing key technologies required for the entity’s transition);
small suppliers or customers which require a greater degree of support.

Examples of current and planned engagement activities (3.1b) that an entity may disclose include:

requests for data and information from individuals and organisations along the value chain;
encouragement of suppliers to reduce their respective emissions or develop and implement credible transition plans;
working with suppliers to address deforestation, land conversion or human rights issues relevant to the transition plan;
engagement with customers to encourage more sustainable consumption choices.

For entities in the in the financial sector, this may further include:

activities to engage with loan clients and investee companies on developing and strengthening their respective transition plans;
monitoring and supporting loan clients’ and investee companies’ progress on their respective transition plans;
direct stewardship activities (with reference to relevant Stewardship Codes; e.g. the UK Stewardship Code 2020) towards embedding and accelerating an orderly transition to a low GHG emissions and climate resilient economy.

In describing escalation processes, an entity may set out criteria it applies to manage instances where engagement activities do not lead to the desired changes (3.1c). These may include, for example, commitments to phase out a particular supplier that no longer meets relevant policies and conditions (see also 2.3 Policies and Conditions).

For entities in the financial sector, this may further include:

an explanation of the criteria used by the entity to decide how to exercise voting rights or file shareholder resolutions
an explanation of the criteria used by the entity to decide whether to divest from a particular investee company where engagement efforts are not leading to the desired changes

Users will value disclosure of the expected principal contributions of the entity’s engagement activities towards achieving its Strategic Ambition, where possible, presented with some quantification (either as point estimates or ranges) (3.1.d). Where this is not possible, the entity may explain the principal contribution in qualitative terms.

3.1 Examples

Please note: Transition planning is an emerging space in which current practice is rapidly evolving. The selected examples should not be regarded as an articulation of “best practice”. Instead, they are intended to illustrate the type of information an entity may want to include under a particular Sub-Element to support interpretation of the framework by preparers. It is important to note that selected examples will often not cover the entirety of TPT Recommendations and may sometimes contain information which is relevant to multiple TPT Sub-Elements. Readers should note that some examples are taken from transition plan-related content in entities’ wider climate-related disclosures, as well as content in standalone transition plans.

Example 1:

Example of how an asset manager and insurer has disclosed information relevant to 3.1b (also relevant to 3.1d):

Source: Aviva plc, Climate Transition Plan, p.25 (2022)

3.2 Engagement with industry

An entity shall disclose information about any engagement and collaborative activities with industry counterparts (and other relevant initiatives or entities) that it is undertaking or plans to undertake in order to achieve the Strategic Ambition of its transition plan.

3.2 Disclosure Recommendations

As part of this, an entity shall disclose

a. information about memberships in trade organizations or industry bodies

b. an explanation of how the entity prioritises engagement and collaborative activities in order to maximise their contribution towards achieving the Strategic Ambition of the entity’s transition plan; this may reference key assumptions and external factors disclosed under 1.3 Key assumptions and external factors

c. a description of current and planned engagement and collaborative activities with membership bodies, industry associations, industry counterparts (and other relevant initiatives or entities; e.g. peers and labour unions) including any commitments by the entity arising from these activities¹

d. the expected principal contributions of its activities towards achieving its Strategic Ambition

e. the steps it takes to monitor the activities of membership bodies or industry bodies in which it participates and minimise any actions that may conflict with its own Strategic Ambition.

3.2 Why is this included?

An entity will often find that engagement and collaborative activities with industry counterparts (including membership bodies, industry associations, peers and labour unions) can support its efforts to achieve its Strategic Ambition, for example by sharing industry expertise or addressing common challenges. Users will therefore value information about how an entity is engaging with industry counterparts, as well any industry thought-leadership roles it plays.

To inform their understanding and support their assessment of an entity’s value chain engagement efforts, users will need information about how the entity prioritises engagement and what engagement activities it is undertaking. In addition, they will find it useful to understand whether the advocacy positions of any organisations that it is a member of are aligned with the entity’s Strategic Ambition. They will therefore value disclosures about memberships in trade organisations and industry bodies, influential positions the entity holds, and information about how the entity is monitoring the bodies in which it participates.

This will help users assess the credibility of the entity’s engagement strategy and make a judgement about whether an entity’s industry engagement is consistent with its overall Strategic Ambition.

3.2 Disclosure considerations

In order to disclose effectively in accordance with 3.2 an entity may wish to consider the following.

In disclosing information about memberships in trade organisations or industry bodies (3.2.a), an entity may consider providing information to help users contextualise the nature of that relationship. For example, an entity may consider including information about:

governance positions it holds within that trade organisation or industry body; and
chair roles or other influential positions it holds in working groups to formulate or influence policy or positions in areas critical to achieving the Strategic Ambition of its transition plan.

Where an entity is involved in a large number of bodies, it may be appropriate to focus its disclosures on the most relevant memberships. Where this is the case, users will value transparency about which memberships are regarded as most relevant, and why.

Depending on the broader context of their transition plan, entities may decide to prioritise engagement efforts in different ways (3.2.b). For example, entities may disclose the extent to which they prioritise engagement with:

industry bodies or collaborative initiatives (e.g. GFANZ) that they deem best placed to tackle common transition challenges;
trade organisations or industry bodies that are most active in climate-related matters;
trade organisations or industry bodies that are particularly influential in climate policy and related activities;
trade organisations or industry bodies where the entity has the highest degree of influence over the bodies’ activities and decision making; and
trade unions that can facilitate meaningful dialogue with workers and ensure workforce participation in the transition planning process.

Current and planned engagement and collaboration activities (3.2.c) that an entity may disclose may include:

participation in voluntary industry initiatives (e.g. GFANZ, Race to Zero alliance, Mining 2030, Climate Action 100+, the Deforestation-Free Finance Advisory Group, RE100, SBTN Corporate Engagement Program, UNEP FI Principles for Responsible Banking);
collaboration with industry peers (e.g. to benchmark workplace benefits and incentives across high- and low- carbon roles); and
engagement with labour unions (e.g. on developing inclusive upskilling programs for its workforce).

Commitments that arise from these activities (3.2.c) that an entity may disclose could include, for example, commitments to follow industry standards or approaches, or introduce certain policies or conditions.

In describing steps taken to monitor (3.2e) the activities of membership bodies or industry bodies in which it participates, an entity may include information about:

company-wide policies to track and minute interactions with outside stakeholders;
mechanisms for the regular review of key policy positions taken by associations of which it is a member;
mechanisms for the regular review of press releases on advocacy positions taken by industry associations, trade organisations or industry initiatives of which it is a member;
internal policies and conditions that specify the terms of engagement with any industry association, trade organisation or industry initiative whose advocacy efforts are mis-aligned with the Strategic ambition of the transition plan. This may include criteria for determining when the entity will leave any membership body or industry body.

Users will value disclosure of the expected principal contributions of the entity’s engagement activities towards achieving its Strategic Ambition, where possible, presented with some quantification (either as point estimates or ranges) (3.2.d). Where this is not possible, the entity may explain the principal contribution in qualitative terms.

3.3 Engagement with government, public sector, communities, and civil society

An entity shall disclose information about any direct and indirect engagement activities with the government, regulators, public sector organizations, communities, and civil society that it is undertaking or plans to undertake in order to achieve the Strategic Ambition of its transition plan.

3.3 Disclosure Recommendations

As part of this, an entity shall disclose:

a. an explanation of how the entity prioritises engagement activities in order to maximise their contribution towards achieving the Strategic Ambition of the entity’s transition plan; this may reference key assumptions and external factors disclosed under 1.3 Key assumptions and external factors

b. a description of current and planned engagement activities

c. the expected principal contributions of its activities towards achieving its Strategic Ambition.

3.3 Why is this included?

In many instances, engagement activities with government, regulators, public sector organisations, communities, and civil societies will play an important role in an entity’s transition plan. For example, entities may engage with governments to promote key regulatory or policy changes on which achievement of their Strategic Ambition depends. Where this is the case, users will value information about how effectively the entity is using its influence.

This will help users assess the credibility of the entity’s engagement strategy and make a judgement about whether an entity’s engagement is consistent with its overall Strategic Ambition. This also helps users to understand an entity’s advocacy position relative to its peers and the ways in which government or non-corporate policy is impacting the entity and vice versa.

3.3 Disclosure considerations

In order to disclose effectively in accordance with 3.3 an entity may wish to consider the following:

Depending on the broader context of their transition plan, entities may decide to prioritise engagement efforts in different ways (3.3.a). For example, entities may disclose the extent to which they prioritise engagement with:

stakeholders who are best placed to act on key external factors on which the plan depends (with reference to the factors disclosed under 1.3 Key assumptions and external factors) (e.g. government actors responsible for transition planning); and
stakeholders on which the transition plan is likely to have a significant impact (e.g. communities in which they are planning to open or close production facilities).

In designing its engagement strategy, an entity will also face a strategic choice of whether to engage with counterparts directly or indirectly (e.g. via industry associations). In explaining how it prioritises engagement activities, it may also want to disclose the rationale behind the chosen engagement strategy.

Current and planned activities (3.3b) that an entity may disclose may include:

direct and indirect engagement with governments and policymakers on required national or regional policy changes (e.g. support schemes for technological developments, removing key regulatory hurdles, the development of national sectoral decarbonisation pathways, the development of national or regional adaptation plans);
engagements with national and regional governments on including just transition principles in policy, planning, and spending commitments in line with the International Labour Organisation’s (ILO) just transition guidelines (ILO 2015) or other relevant good practice guidance;
engagement with communities, civil society organisations, and multi-stakeholder initiatives to assess the potential social impacts of its transition plan; and
engagement with communities, civil society organisations, and multi-stakeholder initiatives to ensure opportunity for meaningful social dialogue and stakeholder participation.

In disclosing information about these engagements, entities may include:

Information on the climate-related advocacy positions of current and planned direct policy engagement activities; and
Information on the climate-related advocacy positions of industry associations that the entity is a member of.

Users will value disclosure of the expected principal contributions of the entity’s engagement activities towards achieving its Strategic Ambition, where possible, presented with some quantification (either as point estimates or ranges) (3.3.c). Where this is not possible, the entity may explain the principal contribution in qualitative terms.

3.3 Examples

Please note: Transition planning is an emerging space in which current practice is rapidly evolving. The selected examples should not be regarded as an articulation of “best practice”. Instead, they are intended to illustrate the type of information an entity may want to include under a particular Sub-Element to support interpretation of the framework by preparers. It is important to note that selected examples will often not cover the entirety of TPT Recommendations and may sometimes contain information which is relevant to multiple TPT Sub-Elements. Readers should note that some examples are taken from transition plan-related content in entities’ wider climate-related disclosures, as well as content in standalone transition plans.

Example 1:

Example of how an asset manager and insurer disclosed information relevant to 3.3b:

Source: Aviva plc, Responsible Investment Review, p.20, (2022)

Footnotes:

1. The TPT notes the similarity between this recommendation and the Disclosure Recommendations on indirect policy engagement under 3.3. Engagement with government, public sector and civil society. Under 3.2 Engagement with industry the primary focus lies on outlining significant engagement activities undertaken to influence membership bodies, industry associations, industry counterparts, and other relevant entities. Under 3.3. Engagement with government, public sector and civil society, the focus lies on outlining significant engagement activities undertaken in collaboration with, or via, trade associations to influence the decision-making and policy positions of government and the public sector.