Net zero transition plans – what you need to know about mandatory reporting

The UK government has announced that every UK listed organisation will need a net zero transition plan. It is expected that from 2022, listed companies will need to detail how they will decarbonise as well as have a target and ambition. If they can’t, they will need to explain why. Plans will focus on Scope 1 and 2 as a minimum, but may well also extend to address at least part of an organisation’s Scope 3 footprint.

Who will it impact?

This requirement will apply to all UK financial institutions and listed companies.

It will, however, have much wider impact as financial institutions and listed companies will seek to implement their published transition plans by asking their suppliers and customers to take climate action too.

Who will enforce it?

The UK Financial Conduct Authority (FCA) will oversee and set up a taskforce to implement the plan. The taskforce will include representatives from industry, academia, and regulatory bodies.

Companies will need to consider the need for independent assurance of their transition plans, in part to reassure stakeholders. The FCA will also oversee company compliance with this legislation. The consequences of non-compliance are not yet clear, but we expect it will include fines.

What will transition plans need to include?

• High-level targets to mitigate climate risk
• A net zero commitment, which includes clear milestones
• Actionable steps to achieve these targets

Exact details of what transition plans should look like, including the use of a commonly agreed standard, are yet to be established.

Further implications

This legislation is expected to influence the behaviour and expectations of a wider set of stakeholders, including lenders, investors, customers, and suppliers.

Whilst the Task Force on Climate-Related Financial Disclosures (TCFD) framework highlights the climate-related risks to businesses, this incoming legislation will require UK-listed firms to plan specifically towards how they will achieve net zero emissions. Our guide on TCFD reporting requirements can be read here.

What next?

Our Annual Report Insights 2021 publication looked at the annual reports of 50 companies with more than 500 employees from among the FTSE350. Its aim was to see how companies are reporting on their impact of climate change and sustainability. It reveals that 82% of organisations said they had targets linked to climate change and 52% of companies clearly explained their strategy for achieving it. This shows that some companies are making progress but many still have work to do.

To discuss developing your transition plan, get in touch.

For further reading on this topic:

Deloitte’s climate content hub

Fact Sheet: Net Zero-aligned Financial Centre - GOV.UK (www.gov.uk)