2. Implementation Strategy

Explore the Disclosure Recommendations

Element 2 provides the Implementation Strategy for the entity’s transition plan.

An entity shall disclose the actions it is taking within its business operations, its portfolio of products and services, and policies and conditions to achieve its Strategic Ambition, as well as the resulting implications on its financial position, financial performance and cash flows. This includes information on any actions it is taking or planning to take 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 the credibility and feasibility of the entity’s implementation roadmap, and the potential implications it may have for the entity’s balance sheet, income statement and cashflow statement, and associated resourcing needs.

Specific considerations for disclosures in line with 2.1-2.4 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.

2.1 Business operations

An entity shall disclose information about the short-, medium- and long-term actions it is taking or plans to take in its business operations in order to achieve the Strategic Ambition of its transition plan.

As part of this, an entity shall disclose:

a. information about any current and anticipated actions, including timelines, relating to matters such as:

i. its production processes or equipment

ii. workforce adjustments

iii. supply chain and procurement

b. information about any current and anticipated changes relating to the entity’s facilities and other physical assets, such as

 i. the location of offices and operations

ii. the responsible retirement or phase out GHG-intensive assets

iii. the management of assets that are exposed to risks arising from the changing climate

iv. the management of long-lived assets that may be impacted as a result of the transition to a low GHG emissions, climate-resilient economy

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

Changes to an entity’s business operations are likely to be prominent in the entity’s Implementation Strategy. To understand the credibility and feasibility of the entity’s transition plan, users will want to understand the actions the entity is taking, or plans to take, in its business operations, as well as the expected principal contributions of these towards achieving the entity’s Strategic Ambition.

This Sub-Element will help users understand the entity’s implementation roadmap, and the potential implications it may have for the entity’s financial position, financial performance and cash flows, and associated resourcing needs (2.4).

In order to disclose effectively in accordance with 2.1 an entity may wish to consider the following:

Key actions relating to an entity’s business operations may relate to (2.1.a-b):

  • production processes or equipment (e.g. actions to embed more low- or no- GHG emission technology into production processes, improve energy efficiency, achieve key biodiversity objectives);
  • workforce adjustments (e.g. actions to require fewer in-person meetings and business travel, actions to re-skill and upskill workers);
  • supply chain and procurement (e.g. actions to source from suppliers with stronger climate commitments, procure alternative goods or raw materials with a lower GHG footprint, relocate or diversify the supply chain);
  • locations of offices and operations (e.g. moving into more energy-efficient office spaces, re-locating operations with more secure supply of renewable energy);
  • responsible retirement or phase out of GHG-intensive assets (e.g. early phase-out of coal mines, fossil-fuel power stations, or vehicles with internal combustion engines);
  • management of assets exposed to risks arising from a changing climate (e.g. actions to strengthen the resilience of office spaces to extreme heat, steps to strengthen the resilience of production facilities to flood or drought risks); and
  • management of long-lived assets that may be impacted as a result of the transition to a low GHG emission, climate-resilient economy (e.g. actions to manage high carbon energy infrastructure or fossil fuel powered production equipment).

 
Users will value information on the expected principal contributions of the entity’s implementation actions towards achieving its Strategic Ambition, where possible quantified and presented either as point estimates or ranges (2.1.c). For example, this might be the expected contribution to emissions reduction in its own operations or its value chain from each action or change. Where this is not possible, the entity may explain the principal contribution in qualitative terms.

An entity may reasonably provide more detailed and granular information about the actions it plans to take in the short-term, relative to those it plans to take in the medium or long term, reflecting the greater uncertainty attached to planned actions further into the future.

In addition, the entity may consider disclosing further information to help users contextualise the information provided. This may include:

  • information on the entity’s physical assets that are most material to its business model including further details that can help users assess whether the entity’s plans to manage or phase out GHG- or GHG-energy-intensive assets are comprehensive and credible. Such details may include exact geolocation, ownership share, production type, capacity, technology, age, and the remaining operational lifetime.

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” and come from organisations at different stages of their transition planning journey. 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 a financial services entity has disclosed information relevant to 2.1.a.iii, 2.1.b.iii and 2.1.b.iv: 

Source: LSEG plc, Accelerating the transition to net zero, p.12, 2022. 

Example 2

Example of how a bank has disclosed information relevant to 2.1.a:

Source: Natwest plc, Climate-related Disclosures Report, p.51, 2022.


Example 3

Example of how a financial services entity has disclosed information relevant to 2.1.a.i, 2.1.b.iii:

Source: L&G plc, Climate Transition Plan, p.22, 2022.

Example 4

Example of how a Metals & Mining entity has disclosed information relevant to 2.1.a-b:

Source: Anglo American plc, Climate Change Report, p.24, 2022.

2.2 Products and services

An entity shall disclose information about short-, medium-, and long-term actions it is taking or plans to take to change its portfolio of products and services in order to achieve the Strategic Ambition of its transition plan.

As part of this, an entity shall disclose:

a. information about any current and anticipated actions, including timelines, to change the portfolio of products and services that it provides or facilitates (e.g. via franchising, financing or underwriting activities)

b. any underlying taxonomy, tools, methodologies or definitions used to classify products and services under this Sub-Element

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

Actions to change the portfolio of products and services that the entity provides or facilitates may be an important part of an entity’s implementation strategy. Such changes may significantly affect the entity’s prospects, so users will want to understand the actions the entity is taking, or plans to take, to change its portfolio of products and services, and the expected principal contributions of these towards achieving the entity’s Strategic Ambition.

Accompanying information about how the entity classifies its products and services will allow users to assess the credibility, rigour and independence of the classification approach and its suitability for the circumstances in which it has been applied. 

In order to disclose effectively in accordance with 2.2 Products and Services, an entity may wish to consider the following:

Examples of key current and planned changes that an entity may disclose (2.2.a) include:

  • increasing the share of low- GHG emissions products and services in its portfolio (e.g. increasing the share of products produced using clean technology or low-GHG inputs, increasing the penetration of plant-based products, creating new green or transition-related financial products, increasing the share of investment activities in low-GHG assets); and
  • plans to phase out high-GHG products and services (e.g. phasing out blast furnaces and replacing with electric furnaces, phasing out the sale of vehicles with traditional internal combustion engines).

  
Providing details about any taxonomies, tools, methodologies or definitions it has used to classify or define products and services will help provide context for its disclosures (2.2.b). These may include regulatory taxonomies, such as the (forthcoming) UK Green Taxonomy, the EU Taxonomy, or other regulatory, third-party or proprietary taxonomies or tools.

Users will value information on the expected principal contributions of the entity’s implementation actions towards achieving its Strategic Ambition, where possible quantified and presented either as point estimates or ranges (2.2.c). For example, this might be the expected contribution to emissions reductions in its own operations or its value chain from each action or change. Where this is not possible, the entity may explain the principal contribution in qualitative terms.

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” and come from organisations at different stages of their transition planning journey. 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 a food & agriculture entity has disclosed information relevant to 2.2.a:

Source:  Diageo plc, Net zero Carbon Strategy, p.9, 2022.  

Example 2: Example of how an engineering & construction services entity has disclosed information relevant to 2.2.a: 

Source: Buro Happold, Net Zero Routemap, p. 5, 2023.

2.3 Policies and conditions

An entity shall disclose information about any policies and conditions that it uses or plans to use in order to achieve the Strategic Ambition of its transition plan.

 As part of this, an entity shall disclose:

a. a description of the policy or condition, that it uses or plans to use in order to achieve the Strategic Ambition of its transition plan; these may relate to matters such as:

i. energy usage

ii. phase-out of GHG-intensive assets

iii. climate-related considerations in procurement/ for suppliers

iv. climate-related considerations (e.g. thresholds, targets or restrictions) in lending or investment activities

v. adapting and building resilience to climate change

vi. supplier engagement

vii. portfolio engagement

viii. land use and land management changes (e.g. deforestation)

ix. safeguards to address potential adverse impacts on the natural environment

x. human rights

xi. labour standards

xii. advancing social equity or addressing potential adverse social impacts (e.g. on communities)

b. the expected principal contributions of the policy or condition towards achieving its Strategic Ambition.

An entity will typically maintain a large number of policies and conditions that guide decision-making across the organisation. These may relate to any of a wide range of matters, such as internal operations, energy use, value chain and procurement decisions, and engagement. 

Users will value information about any policies or conditions that the entity uses, or plans to use, to guide decision making, actions and operations in support of the implementation of its transition plan and the achievement of its Strategic Ambition. Users will need sufficient context on the nature and scope of application of relevant policies and conditions to inform their understanding and support their assessment of the role of these policies and conditions in achieving the Strategic Ambition of the transition plan.

In order to disclose effectively in accordance with 2.3 an entity may wish to consider the following:

The entity may briefly describe the policies and conditions that are expected to make a key contribution to achieving the Strategic Ambition of its transition plan. These will differ according to the entity’s sector, business model, Strategic Ambition and its overall implementation and engagement strategies. Paragraph 2.3.a provides a non-exhaustive list of matters that may be addressed.

To provide appropriate context for the policies and conditions described, the entity may consider disclosing the objective of the policy, the nature and scope of activities to which it relates (e.g. application across specific business lines), the timeframe over which it applies, how it is overseen, and any metrics and targets that the entity uses to assess its contribution to achieving the Strategic Ambition of its transition plan.

Users will value information on the expected principal contributions of the entity’s implementation actions towards achieving its Strategic Ambition, where possible quantified and presented either as point estimates or ranges (2.3.b). For example, this might be the expected contribution to emissions reduction in its own operations or its value chain from each action or change. Where this is not possible, the entity may explain the principal contribution in qualitative terms.

2.4 Financial planning​

An entity shall, to the extent the financial effects of its transition plan are separately identifiable, disclose information about the effects of its transition plan1 on its financial position, financial performance and cash flows2 over the short-, medium-, and long-term, including information about how it is resourcing or plans to resource its activities in order to achieve the Strategic Ambition of its transition plan.3

As part of this, an entity:

a. shall disclose information about how the entity is resourcing, and plans to resource, the current and planned activities set out in its transition plan

b. shall disclose all qualitative and quantitative information about how it expects implementation of its transition plan to affect its financial position over the short, medium, and long term, taking into consideration matters such as:

i. its investment and disposal plans (e.g. plans for capital expenditure, major acquisitions and divestments, joint ventures, business transformations, innovation, new business areas, investments into research and development for climate solutions and asset retirements), including plans to which the entity is not contractually committed

ii. planned sources of funding to implement its plan

c. shall disclose qualitative and quantitative information about how it expects implementation of its transition plan to affect its financial performance and cash flows over the short, medium and long term (e.g. increased revenue from products and services aligned with a low-GHG emissions, climate-resilient economy, and expenses associated with climate adaptation or mitigation)4

d. shall, in disclosing information about 2.4 b–c

i. use all reasonable and supportable information that is available to the entity at the reporting date without undue cost and effort

ii. use an approach that is commensurate with the skills, capabilities and resources that are available to the entity for preparing those disclosures

e. may, in disclosing quantitative information under 2.4 b–c

i. disclose a single amount or a range

ii. prioritise quantitative information for current financial effects and those of short-term actions that may be more certain

f. need not provide quantitative information about some or all of 2.4 b–c

i. if it determines that:

      1. those effects are not separately identifiable; or
      2. the level of measurement uncertainty involved in estimating those effects is so high that the resulting quantitative information would not be useful
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ii. if it does not have the skills, capabilities, or resources to provide that quantitative information.

g. shall, if in accordance with 2.4.f it need not provide quantitative information about some or all of 2.4 b–c

i. explain why it has not provided quantitative information

ii. explain how the implementation of its transition plan is covered within its wider financial planning and financial decision-making processes

iii. provide qualitative information about how considerations related to the implementation of the transition plan are integrated into the entity’s investment and disposal plans (e.g. plans for capital expenditure, major acquisitions and divestments, joint ventures, business transformations, innovation, new business areas, investment into research and development for climate solutions and asset retirements), including plans to which the entity is not contractually committed.

When using an entity’s transition plan for the purposes of making capital allocation decisions, a user is likely to consider information about the effects of the transition plan on the entity’s financial position (changes to assets and liabilities), financial performance (changes to revenues and costs), and cash flows (changes to working capital) to be critical.

In order to disclose effectively in accordance with 2.4 an entity may wish to consider the following:

Information about how the entity is resourcing the activities set out in its transition plan (2.4a) may include:

  • the expected funding needs for capital expenditure that arise from activities as outlined in 2.1 Business operations and 2.2 Products and services; both in absolute terms and, where possible, relative to total capital expenditure over the same time horizon;
  • the expected funding needs for research & development activities that arise from activities outlined in 2.1 Business operations and 2.2 Products and services.

 
Examples of how the transition plan may affect an entity’s financial position over the short, medium, and long term may include (2.4b):

  • expected changes to asset valuations and asset lives as a result of delivering on the transition plan (e.g. shortening asset lives and asset values due to impairments of pollutant assets where they become stranded assets or there is less of a market for them in a low GHG emissions economy;
  • expected positive changes to asset valuations e.g. increasing value of plant or equipment that makes products needed for the transition);
  • gearing impacts on the balance sheet in respect of funding.

 
Financial performance (Income statement) effects (2.4.c) may include:

  • expected impacts on revenues (e.g. increased revenue from products and services aligned with a low-GHG emissions, climate-resilient economy, anticipated consumer demand for new low GHG products and services);
  • expected impacts on operating costs (e.g. initial sunk costs due to embedding new low- or no-GHG emission technology, losses on disposal of business units, commodity risk management costs due to increases in percentage of renewable electricity generation and increased costs passed on by suppliers);
  • long-term savings from investments in renewable energy assets;
  • impairments due to adverse impacts trigged by the climate transition (e.g. due to the trade-offs referenced in 1.1.d or where assets are (expected to become) stranded);
  • expected impacts on profit margins (e.g. reflecting assumptions regarding the degree to which changes in costs can be passed through to consumers).

 
Financial position (Balance sheet) effects (2.4.c) may include:

  • expected changes to asset valuations and asset lives as a result of delivering on the transition plan (e.g. shortening asset lives and asset values due to impairments of pollutant assets where they become stranded assets or there is less of a market for them in a low-GHG emissions economy);
  • expected positive changes to asset valuations (e.g. increasing value of plant or equipment that makes products needed for the transition);
  • planned financing arrangements to support business continuity as the entity develops low-GHG products and services, and material impacts on financing arrangements.

 
Cashflow effects (2.4.c) may include:

  • The impacts of many of the above will need to be factored into cash flow projections when calculating forward looking revenue, capital expenditure, for example, as well as the growth rate of the business and terminal value. If appropriate, the entity may refer to the impact on financial position and performance in context of the entity’s operating segments, under IFRS8, to enable consistency between the transition plan and the entity’s general purpose financial reporting.

 
Please note this 2.4.c is not intended to cover information about the financial effects of wider climate-related risks and opportunities. Instead, the focus is direct and indirect effects on financial performance and cash flows from implementing the transition plan itself.

In assessing whether it has used all reasonable and supportable information that is available to the entity at the reporting date without undue cost and effort (2.4.f.i), an entity may find it helpful to refer to IFRS S1 B8-10.

In assessing whether it has the used an approach commensurate with the skills, capabilities and resources that are available to the entity (2.4.f.ii), an entity may find it helpful to refer to IFRS S2 B6-7.

In disclosing information about how it will resource its transition plan, an entity may consider disclosing ranges or percentage of totals (2.4.e), particularly where expected resourcing needs are less certain and/or far into the future.

Footnotes:

1. Please note that 2.4.c is not intended to cover information about the financial effects of wider climate-related risks and opportunities. Instead the focus lies on the direct and indirect effects from implementing the transition plan itself. 

2. For entities in the financial sector, this should cover the financial performance of the entity itself and not its investment or lending portfolio.

3. This Sub-Element should be regarded as distinct from the Disclosure Recommendations under Sub-Element 4.2 Financial metrics and targets. Under 2.4 Financial planning, the focus should lie on demonstrating that the entity has integrated the transition plan into its financial planning and disclosing expected financial effects. Under Sub-Element 4.2 Financial metrics and targets, on the other hand, the entity should disclose the financial metrics and targets that it is using to assess progress and delivery of the plan over time.

4. This may include quantitative information about the combined financial effects of the transition plan with other aspects of wider corporate strategy unless the entity determines that quantitative information about the combined financial effects would not be useful.