As part of a wave of new climate disclosure regulations across the globe, companies are preparing to provide information on their “transition plans.” A transition plan outlines the steps a company is taking to prepare for the shift to a low-carbon economy, including plans to achieve any decarbonization goals.
Transition plans aren’t a new concept; they have long been part of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which underpins nearly all climate disclosure regulations. Now, key regulations, including Europe’s Corporate Sustainability Reporting Directive (CSRD) and the SEC Climate Disclosure Rule, call on companies to share information about their transition plans.
Standard-setters have been working to help businesses navigate these transition plan disclosure requirements. In 2023, the UK Transition Plan Taskforce (UK TPT) released the TPT Disclosure Framework, with the aim of providing a global gold standard for all companies preparing climate transition plan disclosures — not just those in the UK.
The Framework’s universal relevance became evident this year. In June, as part of a global effort to streamline climate disclosure standards, the International Sustainability Standards Board (ISSB) announced it would take over responsibility for disclosure-specific transition plan materials developed by the TPT. Because securities regulators worldwide look to the ISSB when designing climate disclosure rules, this development anchors the TPT Framework as the North Star for transition plan disclosure.
In this article, we’ll take a closer look at the key elements of the TPT Framework — and how companies can implement its guidance.
The Fundamentals: Climate Transition Plans and the UK TPT
What is a Climate Transition Plan?
A climate transition plan maps out the actions an organization will take to prepare for and contribute to the energy transition.
The IFRS Climate-related Disclosures standard defines a transition plan as “an aspect of an entity’s overall strategy that lays out the entity’s targets, actions or resources for its transition towards a lower-carbon economy, including actions such as reducing its greenhouse gas emissions.”
The TPT Framework adopts the ISSB’s definition of a climate transition plan as well as many of its wider concepts, including its approach to materiality. A transition plan can serve as both an internal tool for strategic planning and an external communication aid that provides investors, lenders, and other stakeholders with decision-useful information. Seeing a company’s transition plan allows decision-makers to price risk and make choices about capital allocation. It helps them determine whether an entity’s decarbonization strategy is adequate and allows them to hold companies accountable for their public climate commitments.
"We need to back up net zero targets with firm plans. Climate transition plans, if suitably ambitious and delivered with appropriate actions and with proper accountability, can help society allocate capital to companies and assets that are actually contributing to meeting the aims of the Paris Agreement, and away from those that aren't.” - Dr. Ben Caldecott, TPT Secretariat Co-head, in Business Green
What is the UK TPT?
The TPT was formed to create a gold standard for climate transition plan disclosure.
The UK government launched the Transition Plan Taskforce in March of 2022, with the goal of convening regulators, industry leaders, and academics to create a global gold standard for private sector climate transition plans. The TPT coordinated with various governments and regulators outside of the UK, listening closely to stakeholders to develop guidance that aligns with widely accepted disclosure principles, including those from the TCFD and ISSB, as discussed more below. By focusing on interoperability, comparability, and consistency, the TPT aims to help companies around the world develop robust and credible climate transition plans as efficiently as possible.
What Do Other Key Regulations Say About Transition Plans?
The EU and the US have policies requiring disclosure about transition plans.
Around the world, momentum continues to build for transparency around transition plans. Below, we go into more detail about what ISSB S2 says about transition plans. Climate disclosure regulations in the European Union and the United States also require companies to share information about their transition plans — and many other jurisdictions are expected to follow suit as they adopt the ISSB standards. Below, we’ll take a closer look at the EU and SEC transition plan disclosure requirements. The TPT Framework can serve as an essential resource as businesses prepare to report under any of these rules.
European Union: CSRD and CSDDD
The EU’s CSRD, which went into effect on January 1, 2024, madates thousands of companies — including many based outside of Europe — to disclose their climate and sustainability risks and impacts. The European Sustainability Reporting Standards (ESRSs) support the CSRD, outlining exactly what and how companies should report in order to comply with the directive. Under the climate change reporting standard (ESRS E1), organizations must share information on climate transition plans if they have them. The policy directs companies to disclose key transition plan elements, including:
- How the company’s targets are compatible with the Paris goal of 1.5°C
- Decarbonization levers identified and key actions planned
- Investments and funding that support the transition plan
- Potential locked-in emissions from key assets and products
- An explanation of how the transition plan aligns with the overall business strategy
- A description of progress in implementing the plan
Under the standard, if an entity doesn’t have a transition plan, it must share whether, and if so, when it will adopt one. A full description of transition plan requirements can be found in ESRS E1, and more implementation guidance is forthcoming.
In a related development, on July 25, 2024, the Corporate Sustainability Due Diligence Directive (CSDDD) entered into force. The policy requires large companies with significant business activities in the EU (including non-EU entities) to perform due diligence on human rights and environmental issues — or face significant penalties. Under the CSDDD, organizations have to implement — not just disclose — climate transition plans, with timebound targets for reducing scope 1, 2, and 3 emissions. These plans must be updated annually, detailing the progress the company has made toward achieving its targets. For entities reporting under the CSRD, these transition plans will be subject to external assurance. The CSDDD and CSRD are complementary: While the CSDDD mandates action to implement transition plans, the CSRD calls for transparency about them.
United States: SEC Climate Disclosure Rule
In 2024, the U.S. Securities and Exchange Commission (SEC) finalized requirements for publicly-traded companies to report on their climate-related financial risks. Under the SEC Climate Disclosure Rule, organizations must provide a narrative disclosure that outlines climate-related risks with a material impact on the company’s business strategy, operations, financial condition, and outlook. They must also report their scope 1 and 2 emissions, if material, and provide disclosures about any material climate-related targets or goals, including material expenditures and impacts on financial estimates resulting from the target or actions taken to meet such target or goal.
As part of the disclosures about strategy, Section 1502(e) of the SEC Climate Rule requires entities that have adopted a “transition plan to manage a material transition risk” to provide a description of the plan, along with updated disclosures in subsequent years describing actions taken under the plan. However, the SEC Climate Disclosure Rule does not mandate the adoption of transition plans. If a company doesn’t have a plan, it doesn’t have to disclose these details. The SEC further describes its rationale and requirements in the adopting release:
"We recognize that not every registrant has a transition plan and, as noted above, this rulemaking does not seek to prescribe any particular tools, strategies, or practices with respect to climate-related risks. If, however, a registrant has adopted such a plan, information regarding the plan is important to help investors evaluate a registrant’s management of its identified climate-related risks and assess the potential impacts of a registrant’s strategy to achieve its short- or long-term climate-related targets or goals on its business, results of operations, and/or its financial condition."
The Foundations: Standards Behind the UK TPT
Where does the TPT Framework fit with global standards?
The Framework draws on guidance from ISSB, TCFD, GFANZ, and IAASB.
The TPT Framework is part of a global push to harmonize the different standards guiding climate disclosure. It draws on foundational guidance from the ISSB, TCFD, GFANZ, and IAASB. Since the TPT Framework was first introduced, it has rapidly gained traction, most notably with the endorsement of the ISSB in June 2024. Below, we detail the key standards underpinning the Framework.
International Sustainability Standards Board (ISSB)
The TPT Framework was designed to build on the work of the International Sustainability Standards Board (ISSB) and to complement IFRS S1 and IFRS S2, which were finalized in June 2023. In turn, the ISSB standards were built on the foundation of the widely used TCFD Recommendations. IOSCO, the global organization of securities regulators, has endorsed the ISSB Standards and they are already shaping disclosure regulations in many jurisdictions.
ISSB’s climate-related standard, IFRS S2, prompts companies to report any climate-related transition plan they have, sharing the key assumptions they used in developing the plan, and the dependencies upon which it relies (IFRS S2, Para. 14(a)(iv).) The TPT Framework builds on that disclosure requirement and other elements of ISSB S2 to provide a framework for disclosures about the entity’s plan.
When the TPT Framework was issued, the ISSB welcomed it as a complement to its guidance and a useful tool for companies in developing disclosures under IFRS S2. Now, it has also formally taken over responsibility for the disclosure-specific transition plan materials developed by the UK TPT.
Glasgow Financial Alliance for Net Zero (GFANZ)
In developing its guidance, the TPT also relied on standards from the Glasgow Financial Alliance for Net Zero (GFANZ), a voluntary global coalition of financial institutions committed to accelerating the economy's decarbonization. The TPT Framework uses the same core components as GFANZ to support companies in developing their transition plans.
The Transition Plan Disclosures Landscape:
How preparers can use the outputs of ISSB, GFANZ, and TPT
Source: TPT Disclosure Framework, p. 14
International Auditing and Assurance Standards Board (IAASB)
Many disclosure regulations now require entities to obtain assurance over their sustainability reports. In its guidance, the TPT recommends that a reporting entity disclose which aspects of its transition plan are subject to external assurance or verification, along with the nature of that assurance or verification. To meet this requirement, companies can look to guidance from the International Auditing and Assurance Standards Board (IAASB); its ISSA 5000 (International Standards on Sustainability Assurance - General Requirements for Sustainability Assurance Engagements) describes how this type of assurance should be obtained for sustainability information prepared for different frameworks, including Europe’s CSRD, described below.
In Focus: The UK TPT Disclosure Framework and Guidance
Ambition, Action, and Accountability.
On October 9, 2023, the TPT published its final Disclosure Framework and Guidance. The Framework applies the guiding principles of ambition, action, and accountability: It says plans should reflect the urgency to act, outline concrete steps, and be fully integrated into business and financial planning, with clear roles and responsibilities defined. The TPT calls on companies to take a holistic approach to transition plan disclosures, with a focus on three priorities:
- Decarbonizing. Transition plans should focus on actions in the entity’s own operations or value chain that reduce GHG emissions.
- Responding to risks and opportunities. Plans should outline actions that build the company’s resilience to physical and transition risks from climate change.
- Contributing to an economy-wide transition. Organizations should identify levers they can use to accelerate the transition to a low-carbon economy.
Source: TPT Disclosure Framework, p. 15
Who Needs to Comply with the UK TPT Framework — and When?
The TPT Framework is currently a resource, not a requirement, but forward-thinking businesses are adopting it now.
The UK government announced the creation of the UK TPT in November 2021, and Her Majesty’s Treasury and the UK FCA have committed to consult on transition plan disclosure requirements alongside their plans to incorporate the ISSB Standards into UK law. At this moment, companies are not required to follow the TPT Framework for their transition plan disclosures. However, given the trends in regulated climate reporting — and the specific expectations for disclosures about transition plans — companies would be wise to consider implementing the Framework as they develop and disclose their transition plans.
The UK’s Financial Conduct Authority (FCA) is already encouraging listed companies and regulated firms to engage early with the TPT Framework, and it issued a similar letter calling on banks to do the same. Other jurisdictions are also considering transition plan requirements for certain financial institutions. Both the Financial Stability Board (FSB) and IOSCO are taking a closer look at the role of transition planning and transition plan disclosures in meeting supervisory objectives and investor needs.
Because it is poised to serve as a global gold standard based on common principles, the TPT Framework can help your company make transition planning more efficient, less complicated, and more decision-useful for your audiences. The ISSB’s new role in managing the TPT disclosure guidance materials will further support companies in navigating current transition plan expectations and future requirements. Ultimately the Framework is a powerful strategic tool for your business. Aligning your transition planning with the Framework now will set you up to respond to new regulations in the future. As you work to meet the climate disclosure requirements of your jurisdiction — whether your business operates in the EU, the US, or another part of the world — you can begin to incorporate TPT principles. You don’t have to wait.
The UK TPT Framework: What Should Companies Disclose?
Transition plan disclosures should address five key elements.
The TPT encourages entities to include transition plan disclosures as part of their general-purpose financial reports, and also to publish transition plans as single standalone documents. According to the Framework, a best practice transition plan will include the following elements:
- Foundations. Outline your strategic ambition, including how you will respond to and contribute to the transition to a low-carbon and climate-resilient economy. Disclose the anticipated impacts of the transition plan on your business model and value chain, and the key assumptions underpinning the plan.
- Implementation Strategy. Describe the actions you’re taking in your operations, products, services, policies, and conditions to achieve your strategic ambition. Discuss the implications for your financial position, performance, and cash flows.
- Engagement Strategy. Demonstrate how you’re engaging with your value chain, industry peers, government, public sector, communities, and civil society to achieve your strategic ambition.
- Metrics and Targets. Show the metrics and targets your company is using to drive and monitor progress.
- Governance. Detail how you’re embedding the transition plan in your governance structures to achieve the objectives of your strategic ambition.
Prepare for Disclosure Using the UK TPT Framework
Businesses can follow TPT’s four-stage implementation roadmap.
To help companies get started with transition plan disclosures, the TPT has prepared a detailed implementation guide to accompany its Framework. The guide outlines four key phases:
Stage 1: Baselining Current Position
To begin with, you will need to include an assessment of your climate-related risks and opportunities. This step may include scenario planning following the TCFD framework. You’ll examine your decarbonization levers and analyze interdependencies that could affect progress — for example, the connections between nature and climate action and your workforce, supply chains, communities, and customers. This is the stage at which you’ll need to calculate your carbon footprint; reliable data about where your emissions come from is essential to communicate with stakeholders and lay the groundwork for an effective transition plan.
Stage 2: Setting Strategic Ambition
As part of your strategic ambition, you need to identify a set of clear objectives and priorities with timebound targets and milestones. In this step, you’ll establish your emissions reduction targets and determine your decarbonization priorities. Notably, the TPT recommends that you support all long-term reduction targets with interim targets (with a 5-10-year timeframe). Your targets should be informed by both the latest global agreements on climate change and relevant commitments made by the jurisdiction you’re in. Decarbonization priorities will vary based on your sector, size, and geography, but should ultimately enable you to hone in on your most material emissions.
Stage 3: Developing an Action Plan
In this stage, you’ll translate your long-term targets into concrete actions. You should map out these actions at a granular level. Examples might include engaging with suppliers to reduce emissions, phasing out high-emission activities, or piloting new low-carbon technologies. This is when you’ll want to consider a change management strategy that engages every function in your organization. You should also analyze how a changing climate might affect your ability to meet your objectives. For example, if you’re a power provider, you’ll need to think about how drought might influence the availability of water for hydroelectric projects. You should also look at how the strategic plan might change your financial position, performance, and cash flows. An engagement program is also part of this phase; you’ll want to prioritize engagement with different external stakeholders based on where you’ll yield maximum impact.
Stage 4: Ensuring Accountability for Delivery
Clear accountability mechanisms should underpin every transition plan. In the final stage, you’ll define the metrics, targets, and KPIs you’ll use to monitor your progress on strategic objectives. This is where you’ll want to examine your assurance approach and control environment, including engaging your internal audit function and evaluating your systems and processes to ensure high-quality data. Executive leadership should be assigned oversight responsibility, and a cross-functional team within the organization should take ownership of delivery. Board education, employee training, and incentives will all help ensure buy-in and engagement across the company.
The Four Stages of Preparing a Transition Plan
Source: The Transition Plan Taskforce Implementation Guidance, p. 8
Carbon emissions and your decarbonization plan
Technology can help with ambition, action, and accountability.
No transition plan is complete without a comprehensive carbon inventory. To understand your risks and develop your plan, you need a detailed picture of where your emissions are coming from. Using a reliable carbon accounting platform will ensure that the data you rely on is traceable, transparent, and accurate, so you can disclose your transition plan with confidence — and effectively prepare for one of the largest macro trends in the global economy.
The TPT Framework fully incorporates the ISSB S2 disclosures about carbon emissions and targets, making seamless connections between the foundational footprint and setting your Ambition. A robust carbon accounting platform that captures activity data and offers strong analytical tools can help you take Action. And tracking your emissions data with controls will help you demonstrate your Accountability (and be assurance-ready!).
Navigating the future of climate transition
The bottom line is that climate transition plans are here to stay. Disclosure requirements are growing, and companies can expect to see more jurisdictions begin to ask for transition plans from specific sectors. Following the TPT Framework will help demystify the process and ensure that your transition plan meets global standards.
But it’s not just about responding to regulations. Transition plans have become integral to sound business strategy; the TPT Framework provides a roadmap for strategic planning too. Ultimately, a good transition plan will help you decarbonize more efficiently — saving your company resources and setting it up to thrive in the low-carbon economy of the future.
Get started in your climate journey with Persefoni Pro and Net Zero Navigator.
