The Transition Plan Disclosure Landscape

There is a growing global momentum surrounding private sector transition plans. The TPT is actively supporting efforts to build consensus and avoid the proliferation of different standards.

The Transition Plan Disclosure Landscape

This section provides an introductory overview of emerging global norms on transition planning, and the interaction with the TPT Disclosure Framework.

There is a growing global momentum surrounding private sector transition plans and their vital role in supporting the global shift to net zero, both in the financial sector and in the real economy. The past few years has witnessed significant movement towards the emergence of shared global norms for what constitutes a credible, high-quality transition plan. The TPT is actively supporting efforts to build international consensus on this topic and to avoid fragmentation of standards and expectations.

Progress towards global sustainability reporting standards through the TCFD and ISSB

The Task Force on Climate-Related Financial Disclosures (TCFD) created Recommendations in 2017 to guide entities in disclosing how they are considering and responding to climate-related risks and opportunities. The International Financial Reporting Standards (IFRS) Foundation’s  board for sustainability disclosures – the International Sustainability Standards Board (ISSB) –  emerged in 2021 as a new international standard-setter for sustainability reporting.

In June 2023 the ISSB published IFRS S1 General Requirements for Disclosures of Sustainability-related Financial Information (IFRS S1) and IFRS 2 for Climate-related Disclosures (IFRS S2) both of which incorporated the TCFD’s recommendations The IFRS Foundation has now taken on responsibilities for monitoring the progress on companies’ climate-related disclosures from the TCFD.

The TPT Framework is designed to complement and build on the wider climate-related disclosure requirements incorporated in both the TCFD and the IFRS S1 and S2 standards. To illustrate these linkages, the TPT has developed two technical mappings against the TCFD and the ISSB Standards (see here).

Other transition plan frameworks and standards

The TPT has also ensured its outputs align with other frameworks and standards. In particular, the TPT draws on the components identified by the Glasglow Financial Alliance for Net Zero (GFANZ) of a good transition plan, ensuring the outputs of both initiatives lock together to form an integrated approach to transition planning.

The way these frameworks and requirements come together is set out in the below figure. The figure shows how preparers of transition plans may draw on the resources of the TPT and GFANZ to support reporting against the ISSB Standards. Preparers may benefit from the additional depth and detail provided by the various pieces of guidance.

Summary of key global sustainability reporting developments

The tables below outline key global sustainability reporting developments, highlighting any transition plan disclosure requirements and, specifically, the interaction with the TPT Disclosure Framework.

About

The TCFD – established by the Financial Stability Board (FSB) – developed a framework for organizations to embed and report their consideration of the financial impacts of climate change.  

TCFD recommends 11 disclosures across four areas (Governance, Strategy, Risk Management and Metrics and Targets). Key features of the recommendations are that they are:

  • Adoptable by all organizations
  • Included in financial filings
  • Designed to solicit decision-useful, forward-looking information on financial impacts
  • Have a strong focus on risks and opportunities related to transition to a lower-carbon economy

In June 2023, the International Sustainability Standards Board (ISSB) issued the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and the IFRS S2 Climate-related Disclosures standards. The objective of these standards is to create a global baseline of sustainability disclosures, which meet the information needs of investors and enable companies to provide comprehensive sustainability information to global capital markets. The ISSB also aims to facilitate interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups. 

The ISSB standards are based on the TCFD recommendations. The IFRS Foundation has now taken on responsibilities for monitoring the progress on companies’ climate-related disclosures from the TCFD.

The CSRD is an EU Directive that requires entities that meet certain criteria to report on sustainability information in a dedicated section within its management report.

The information will be subject to mandatory limited assurance and mandatory digital tagging.

The sustainability reporting required under the CSRD will start replacing the Non-Financial Reporting Directive’s (NFRD) requirements for the preparation of non-financial information for periods beginning on or after 1 January 2024.  ​

The CSRD requires the application of the European Sustainability Reporting Standards (ESRS) for entities within its scope. 

One of the central pillars of the CSRD is the requirement for in-scope companies to produce disclosures in accordance with the European Sustainability Reporting Standards (ESRS). Companies within the scope of the CSRD are required to disclose (in accordance with the ESRS): 

  • Information on sustainability matters
  • Information necessary to understand:
    • The company’s impacts on sustainability matters 
    • How sustainability matters affect the company’s performance, position, and development

 
The first set of sector-agnostic ESRSs was published in July 2023.

The US SEC adopted the rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors, in March 2024. 

Under the rule, companies are required to disclose climate-related risks that are reasonably likely to have a material impact on a company’s business strategy, results of operations, or financial condition.​

Disclosures required outside of the financial statements include:

  • For those required to disclose Scope 1 and/or Scope 2 emissions, an assurance report at the limited assurance level, which for large accelerated filers, following an additional transition period, will be at the reasonable assurance level.
  • Governance and oversight of material climate-related risks.
  • The material impact of climate risks on the company’s strategy, business model, and outlook.
  • Risk management processes for material climate-related risks.
  • Material climate targets and goals.
  • Subject to applicable one percent and de minmus disclosure thresholds, notes to the financial statements of capitalised costs, expenditures expensed, charges and losses incurred as a result of severe weather events and  other natural conditions (e.g., flooding, extreme temperatures).

Launched in April 2021, the Glasgow Financial Alliance for Net Zero (GFANZ) is a global coalition of leading financial institutions committed to accelerating the decarbonization of the economy.

 GFANZ brings together independent, sector-specific Alliances to tackle net-zero transition challenges and connects the financial community to the Race to Zero campaign, climate scientists and experts, and civil society.

Interaction with the TPT Framework

The TPT Disclosure Framework is designed to complement, and build on, wider Climate-related Disclosure Requirements in the TCFD.

Further detail can be found in the TPT – TCFD Technical Mapping.

The TPT Framework is designed to complement, and build on, the global baseline provided by IFRS S1 and IFRS2, and help preparers to implement IFRS S2 requirements.

Further detail can be found in the TPT – IFRS S2 Technical Mapping.

The TPT Framework and ESRS 2 General Disclosures ESRS E1 Climate Change require disclosure of related information. 

Further detail can be found in the TPT – ESRS Comparison.

The TPT Framework includes additional aspects in its definition of a transition plan to the SEC rule as the TPT includes how a company might ‘contribute to a rapid global transition towards a low GHG-emissions economy’.

The TPT Framework provides an additional layer of specificity for transition plan disclosures.

Note that under the SEC rule, material Scope 1 and Scope 2 GHG emission disclosures are subject to an assurance report requirement that will be phased in. This is not specified in the TPT Framework.

The Disclosure Framework draws on the components identified by GFANZ of a good transition plan, ensuring the outputs of both initiatives lock together to form an integrated approach to transition planning.

Transition plan requirements

The TCFD recommends in its Implementing Guidance (2021) that organisations disclose their plans for transitioning to a low-carbon economy.

The TCFD also published Guidance on Metrics, Targets and Transition Plans which includes additional guidance on developing and disclosing transition plans.

IFRS S2 Climate-related disclosures requires an entity to make disclosures that relate to transition planning – including the requirement in IFRS S2 par. 14(a) that an entity disclose information about “any climate-related transition plan [it] has”.

ESRS E1 Climate Change includes specific requirements related to climate-related targets and transition plans.

ESRS E1 also states that its requirements should be applied in conjunction with certain disclosures required by ESRS 2 General Disclosures, a cross-cutting standard that applies to all sustainability topics.

CSRD does not require organisations to implement a transition plan if they do not already have one, but does require disclosure under ESRS E1 if they already have one at the time of their disclosures.

Registrants that have adopted a transition plan to manage a material transition risk are required to provide a description of the plan, and updated disclosures in the subsequent years describing the actions taken during the year under the plan. The SEC rule does not mandate adoption of a transition plan; if a registrant does not have a plan, no disclosure is required.

GFANZ has delivered a globally consistent approach to (1) financial institutions and (2) real-economy transition planning, identifying the key elements a transition plan needs to be credible and comprehensive, as well as tools to support the development, creation and implementation of a company’s net zero transition plan. It has a focus on financial industry alignment with net zero across all financial sectors.

The GFANZ framework builds on and consolidates across relevant existing transition plan guidance from a range of technical bodies. For example: CDP for data collection, Science Based Targets for a target-setting methodology, and CA100+ / TPI for transition plan assessment, as well as the relevant broader recommendations of the UN High Level Expert Group.

Implications for UK Companies

UK listed companies are required to make a statement in their Annual Report as to whether their disclosures are consistent with the TCFD recommendations and all sector guidance, or to explain why not, together with the steps taken to enable disclosure in future, and by when.

Similarly, FCA-regulated asset managers and owners are required to make TCFD aligned disclosures and take reasonable steps to ensure these disclosures are consistent with the TCFD’s all-sector guidance.

In its 2023 Green Finance Strategy – Mobilising Green Investment,

the UK Government committed to considering the first two ISSB standards for use in the UK within 12 months of their publication in June 2023. The scope and timing of any requirements is yet to be confirmed. The Government also committed to consulting on transition plan requirements for the largest listed and private companies following the release of the TPT Disclosure Framework, which was published in October 2023.

The CSRD affects entities registered or listed in the EU and has extraterritorial reach. UK companies or groups with listed shares or debt on an EU regulated market and meeting the size criteria under the EU Accounting Directive will be required to include sustainability information in line with the CSRD. EU subsidiaries of non-European groups with significant business activities in the EU will also be required to present sustainability information, including information for the entire non-European group that they are part of.

Certain large companies registered with the SEC would be subject to SEC disclosure requirements.

GFANZ has developed voluntary guidance setting out what financial institutions expect to see in companies’ climate transition plans.

Alliance members commit to report individual progress at least annually, including publishing disclosures aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and climate action plans.