5. Governance
Explore the Disclosure Recommendations
Element 5 provides the Governance of the entity’s transition plan.
An entity shall disclose how it is embedding its transition plan within its governance structures and organisational arrangements in order to achieve the Strategic Ambition of its transition plan.
Appropriate governance structures will be key for enabling the successful delivery of a transition plan. As for any other aspect of corporate strategy, users will find it decision-useful to understand how far the transition plan is ‘owned’ by the board (or other relevant governing body(s) or individual(s)), and how responsibilities for monitoring, managing and overseeing the transition plan are allocated across senior management. Since transition planning is necessarily a dynamic, adaptive and iterative process, users will be interested in how well governance arrangements provide for flexibility, reassessment and revision of the transition plan.
In addition, users will value information about how fully the Strategic Ambition of the transition plan is embedded across the organisation. This will include information on steps the entity is taking to embed the transition plan in its culture and incentive and renumeration arrangements, as well as steps to assess, maintain and build the appropriate skills, competencies and knowledge across the organisation.
Specific considerations in these areas for each of 5.1-5.5 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.
Where the development and delivery of the transition plan is integrated with the governance and organisational arrangements that support the management climate-related risks and opportunities more broadly, users will find it helpful if disclosures in accordance with 5.1-5.5 are provided as part of those wider disclosures.
5.1 Board oversight and reporting
An entity shall disclose information about the governance body(s) or individual(s) responsible for oversight of the transition plan.
As part of this, an entity shall identify that body(s) or individual(s) and disclose:
a. its arrangements for review and approval of the transition plan and its Strategic Ambition, including oversight of any changes, updates and reporting
b. how responsibilities for the transition plan are reflected in the terms of reference, mandates, role descriptions and other related policies applicable to that body(s) or individual(s)
c. how the body(s) or individual(s) determines whether appropriate skills and competencies are available or will be developed to oversee the transition plan
d. how and how often the body(s) or individual(s) is informed about the transition plan
e. how the body(s) or individual(s) takes into account the transition plan when overseeing the entity’s strategy, its decisions on major transactions and its risk management processes and related policies, including whether the body(s) or individual(s) has considered trade-offs associated with the transition plan
f. how the body(s) or individual(s) oversees the setting of targets in the transition plan, and monitors progress towards these targets and the wider strategic ambition of the transition plan.
A transition plan is about the strategic direction of the firm, requiring leadership and oversight from the highest level of governance. To develop confidence in the plan, users of transition plans will value information about the role of the Board, committee(s) or equivalent body plays in overseeing the transition plan.
In order to disclose effectively in accordance with 5.1 an entity may wish to consider the following:
In providing information about arrangements for review and approval of the transition plan (5.1.a), and how responsibilities for the transition plan are reflected in terms of reference, etc. (5.1.b), an entity may wish to disclose whether a specific member of the relevant governance body(s), or sub-committee, has been appointed to be accountable for the transition plan, and the steps that the relevant body(s) is taking, or expects to take to ensure that it has the appropriate skills and competencies to oversee the transition plan (5.1.c).
In demonstrating the effectiveness of governance processes in respect of the development of the transition plan, oversight of the setting of targets, and the monitoring of progress towards these targets the wider strategic ambition of the plan (5.1.f), an entity may wish to include information about the nature, process and frequency of information flow to the relevant governance body(s), or sub-committee (5.1.d), including the nature and frequency of discussions, and the methods for review, approval and monitoring.
Disclosure in accordance with 5.1.e, will help the entity communicate the extent to which the transition plan is integrated in corporate strategy and wider decision-making. An entity may provide information on the extent to which the transition plan is considered by the relevant governance body(s) when making other decisions and overseeing other activities – e.g. when reviewing and guiding business strategy, and risk management processes, when taking decisions on major transactions and plans of action, when setting budgets, or defining performance objectives.
5.2 Management roles, responsibility and accountability
An entity shall disclose information about management’s role in the governance processes, controls and procedures used to monitor, manage and oversee the transition plan, as well as how it is embedded within the entity’s wider control, review and accountability mechanisms.
As part of this, an entity shall disclose:
a. the identity of the management body(s) or individual(s) responsible for executive oversight and delivery of the transition plan
b. the role of the body(s) or individual(s) in 5.2.a. in defining the Strategic Ambition of the transition plan, the setting of targets and the monitoring of progress
c. how oversight is exercised over that body(s) or individual(s)
d. whether the body(s) or individual(s) in 5.2.a. uses controls and procedures to support the oversight of the transition plan and ensure the reliability of information disclosed; if so, an entity shall disclose how these controls and procedures are integrated with other internal functions and information about which aspects of the transition plan are subject to external assurance or verification, including the nature of the assurance or verification.
e. whether the transition plan is subject to shareholder approval, including through a shareholder vote.
Disclosure of the roles, responsibility and accountability of management are important in demonstrating that an entity has the required structures in place to enable the delivery of the plan and build confidence that the plan is appropriately resourced. Users of transition plans will therefore value information about management’s role in the governance processes, controls and procedures used to monitor, manage and oversee the transition plan.
In order to disclose effectively in accordance with 5.2 an entity may wish to consider the following:
In disclosing information about the identity of the management body(s) or individual(s) responsible for executive oversight and delivery of the transition plan (5.2.a), an entity may find it helpful to include:
- whether members of the senior management team have been appointed accountable for the transition plan or parts of the transition plan.
In disclosing information about the roles of body(s) or individual(s) in defining the Strategic Ambition of the transition plan (5.2.b), an entity may find it helpful to include:
- information about how the responsibilities for the design, development, and delivery of the transition plan or its Elements are integrated into the role descriptions and responsibilities of senior management and other relevant staff, and included in their annual objectives;
- a description of how relevant individuals across teams and functions, who have accountability for the execution of the transition plan, are being brought together to promote cross-company ownership of the transition plan;
- information about who is responsible for the sign-off of targets and when and how these are reviewed;
- information about how often the body(s) or individual(s) receive updates on progress against defined targets;
- information about relevant escalation processes that are in place to enable any challenges or concerns in relation to the entity’s transition plan to be communicated to and considered by the relevant governance body(s) or individual(s).
In disclosing information about the controls and procedures to support the oversight of the transition plan and ensure the reliability of information disclosed (5.2.d), an entity may find it helpful to include:
- information on internal controls that are in place to scrutinise the transition plan, and progress against the plan, by relevant internal assurance functions such as internal audit;
- whether (aspects of) the entity’s transition plan disclosures are subject to external assurance or verification, and if so whether the nature of the assurance or verification, and the subject matter that is assured of verified, are clear.
In providing information about whether a transition plan is subject to shareholder approval (5.2e), it may be useful to disclose whether decisions are subject to a vote and, if so, whether the vote is binding or advisory.
Example Disclosures
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 sometime contain information which is relevant to several 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.
Examples:
Example of how a construction materials entity discloses information relevant to 5.2.b-c:
Source: Tyman plc, Annual Report, p.51, (2022)
5.3 Culture
An entity shall disclose information about how it aligns or plans to align its culture with the Strategic Ambition of its transition plan.
As part of this, an entity may disclose information about any relevant steps taken in respect of:
a. company values and purpose statements
b. communications, systems, processes
c. HR policies and procedures (including escalation processes, compensation and benefits). See 5.4 Incentives and remuneration for disclosure recommendations on incentives and remuneration
d. the employee value proposition
e. leadership and manager training programmes
f. workforce engagement strategies.
An entity’s culture and the people strategy can support the entity in achieving its Strategic Ambition by enabling and rewarding the required behaviours and new ways of working, and by inspiring and meaningfully engaging the workforce and prospective employees in order to retain and attract the required talent and skills. Users will therefore value information about how the entity aligns or plans to align its culture with its Strategic Ambition.
In order to disclose effectively in accordance with 5.3 an entity may wish to consider the following:
In disclosing information about any steps taken in respect of company values and purpose statements (5.3.a) it may find it useful to clearly articulate the link between the transition plan and the entity’s stated purpose, as well as evidence of how it is embedding this purpose throughout the organisation.
In disclosing information about leadership and senior management programmes (5.3.e), the entity may find it useful to disclose information about any programmes that it has planned or put in place to promote a transition-aligned culture, behaviours and ways of working (e.g. Board-level, senior management and non-senior engagement or training programmes).
In disclosing information about any relevant steps taken in respect of the employee value proposition (5.3.d) the entity may find it helpful to reference the values set out in employee handbooks and contracts, and how these are aligned to and support the implementation of the transition plan.
In disclosing information about workforce engagement strategies (5.3.f), an entity may find it helpful to describe how it is listening to and engaging its workforce on the transition plan.
Information disclosed under this sub-element may reasonably include references to other aspects of 5. Governance, including by drawing links to information about incentives (5.4 Incentives and Renumeration) and 5.5. Skills, competencies and training.
5.4 Incentives and remuneration
An entity shall disclose information about how it aligns or plans to align its remuneration and incentive structures with the Strategic Ambition of its transition plan.
As part of this, an entity shall disclose:
a. a description of whether and how its executive incentives and remuneration structures are aligned with the Strategic Ambition of its transition plan; this may include information about:
i. the metric(s) used
ii. whether the metric(s) is within the short-term and/or long-term incentive plan(s)
iii. the typical percentage weighting of the transition plan-related metric(s) within the incentive plan for the executive population
iv. the percentage of total executive remuneration that is linked to transition plan-related metric(s)
b. a description of whether and how incentives and remuneration structures for employees across the organization are aligned with the Strategic Ambition of its transition plan, including whether it has applied a consistent approach with that in 5.4.a or whether it has taken a differentiated approach for specific teams or roles.
Aligning incentives and remuneration structures to the Strategic Ambition of the transition plan can be an important tool for driving action by setting the tone from the top, providing a ‘north star’ for incentive plan participants, and as a governance tool to signal management’s support of the plan to employees and external stakeholders. It is therefore important for users to receive information that can help them understand whether the transition plan has been linked with incentives and renumeration structures, both at the executive level and across the organisation.
In order to disclose effectively in accordance with 5.4 an entity may wish to consider the following:
In disclosing information about the typical percentage weighting of the transition plan -related metric(s) within the incentive plan (5.4.a.iii) and the percentage of total executive remuneration that is linked to transition plan-related metrics (5.4.a.iv), an entity may find that the approach differs for individuals across the executive population (for example, the metric weighing in the incentive plan). In such cases, the entity may disclose averages or ranges in its summary of practice.
In describing whether and how remuneration and incentive structures for employees across the organisations are aligned with the Strategic Ambition (5.4.b), an entity may wish to consider including:
- information about whether these relate to the entire workforce, or are only apply to particular roles or teams;
- the metric(s) used;
- the proportion or number of employees whose performance-related pay is aligned with the metric(s);
- the incentive vehicle in which the metric(s) exist (e.g. annual bonus and/or long-term incentive plan); and
- the typical weighting of the metric(s) in the plan(s).
5.5 Skills, competencies and training
An entity shall disclose information about actions it is taking or plans to take to assess, maintain and build the appropriate skills, competencies and knowledge across the organization in order to achieve the Strategic Ambition of its transition plan.
As part of this, an entity shall disclose:
a. information about how the entity assesses whether it has the appropriate skills, competencies and knowledge across the organization to effectively design, develop. Deliver and govern the transition plan in accordance with its Strategic Ambition
b. where it has identified a skills gap, information about actions it is taking or plans to take to acquire or develop the required skills
c. information about actions it is taking or plans to take to provide the Board and executive management with access to the appropriate skills, competencies and knowledge required to effectively oversee the transition plan.
In many cases, an entity may find that delivering its transition plan requires new skills, competencies and knowledge. It will also be important to ensure that its Board and senior management with responsibility for the transition plan have, or have access to, the skills, competencies and knowledge required to provide effective oversight of the transition plan. In order to judge the feasibility of the entity’s transition plan and the commitment to delivery, users will therefore value information about any steps it is taking or plans to take to assess, maintain and build the appropriate skills, competencies and knowledge across the organisations.
In order to disclose effectively in accordance with 5.5 an entity may wish to consider the following:
In disclosing information about how it assesses whether it has the appropriate skills, competencies and knowledge (5.5.a), the entity may find it useful to include:
- how it has assessed the skills and knowledge required for the successful implementation of its transition plan;
- how it has mapped its existing skills and knowledge against the needs identified; and
- information about any key skills and knowledge gaps it has identified.
In disclosing information about actions that an entity is taking or plans to take to acquire or develop required skills, it may include (5.5b):
- recruitment efforts;
- internal training programs and other efforts to up-skill or re-skill its workforce.
In disclosing information about actions that an entity is taking or plans to take to provide the governance body(s) and individual(s) in 5.1 Board oversight and executive management with access to skills, competencies and knowledge (5.5c) may include:
- board effectiveness assessments;
- internally or externally provided training/engagement sessions;
- regular briefings on transition plan-related issues.
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 sometime contain information which is relevant to several 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 a bank disclosed information relevant to 5.5.b:
Source: Natwest plc, Climate-related Disclosure Report, p.48, (2022)
