Practical perspectives on reporting #20: Reaching net zero: perspectives from industry, finance, lawyers and government
By Tamara O’Brien, TMIL’s roving reporter
A bumper hour-long, four-person panel for today’s webinar, on an issue keeping many a corporate reporter from the arms of Lethe – namely, what’s our plan for achieving net zero?
And well they might have sleepless nights. Claire’s context-setting introduction was unusually doom-laden, as she counted off just some of the unnerving manifestations of the climate emergency.
In the first week of July, scientists recorded the hottest average temperature on Earth for more than 100,000 years – not just once but over a period of three days.
The IPCC’s (Intergovernmental Panel on Climate Change) sobering report that we have a small window to act to stay on course for a rise of 1.5 degrees, beyond which things get really sticky. (As I write, the Cerberus heatwave is bringing unimaginable temperatures to Continental Europe: 45°C in Spain, 48°C in parts of Italy.
In this week’s FT (13 July) – a report that the insurance industry is worried about its ability to insure against the risks of climate change. Add your own sector-relevant prophecy here.
It certainly puts a crimp on the usual grumbles we have about increasing regulation. Because heaven knows, we’re going to need some good strong plans to counteract what’s in store for the world.
This was the essence of a LinkedIn message Claire received ahead of today’s webinar, from an investment banker in Singapore. “Looking forward to the session, especially given recent news flow, some of which might slow us from moving towards the targets. You’re doing amazing work keeping the conversation alive.”
For Claire and me (and audience member/former panellist Jeremy Osborn, judging by his comment about life-giving women) – that feeling of gratitude extended to our panel: four women carefully assembled from the worlds of regulation, government, business and finance.
Partly it was their breezy familiarity with the regulatory and sustainability worlds, and the ever-expanding idiolect [1] that accompanies them. It was also their recognition that we’re all in a very ‘uncomfortable’ situation; and we must just own up to that, and deal with it. I found this reassuring. Dealing with net zero is clearly business as usual for these people, which made me think it could be for the rest of us too.
I liked what the panel had to say about organisations needing to get used to a degree of discomfort in formulating their net zero plans. Having less-than-optimal data to work with goes against a lot of people’s training and professional instincts, especially in finance (and managing what’s traditionally not been ‘their’ data is coming the way of many finance teams…). Easy for me to say of course: it’s not my head on the block if the sums prove wrong. But moving towards a spirit of ‘let’s see how we can achieve this goal’ rather than ‘computer says no’ can only be a good thing.
The government view
Representing government, Alicia set out the broad context of the issue of climate change for companies. There’s a rapidly closing window in which to secure a sustainable, liveable future, and choices and actions made in this decade will have impacts now and for thousands of years. What kind of infrastructure, supply chains and so on will we need, to adapt to extreme weather events?
The signs of decisive action are encouraging:
The transition to net zero, which has been described as ‘the greatest movement of capital ever’, has already led to 90% of the world now being covered by net zero targets through their governments.
There’s been a huge shift towards renewables: more than a trillion dollars’ worth of investment last year. Countries have national targets and long-term plans for achieving them as well as National Adaptation Plans covering, for example, measures like flood defences and irrigation system.
Abroad, we’ve seen the EU Green Deal and the US Inflation Reduction Act, while domestically, the UK is the first major economy to legislate for net zero.
Of course there’s more – much more. We haven’t even mentioned biodiversity, which comes with its own framework, the Kunming-Montreal Biodiversity Framework for halting biodiversity loss by 2030, which most of the world signed up to at COP15 (the biodiversity COP) last year.
Introducing the Transition Plan Taskforce
When we temporarily lost sight of Claire in a technical hitch – there has to be a first time – Harriet of Diageo cantered to the rescue, bearing the ‘corporate’ flag. She explained that she, along with many others from corporate, financial, academic and public institutions, is a member of the Transition Plan Taskforce (TPT) Delivery Group. The TPT was launched in November 2021 at COP26, with our then Chancellor Rishi Sunak announcing it as part of the UK’s plans to become the world’s first net zero financial centre. This followed on from the Task Force on Climate-related Financial Disclosures – TCFD – which really focused corporate minds on how to make the link between the impacts of climate change, and their bottom lines.
In fact so many organisations are now making commitments to net zero that it’s the norm in much of the private sector. But as we all know, commitments are easy to make, not so easy to fulfil – and inevitably, transition plans vary greatly in depth and quality. So there’s a growing call for standardised, high quality net zero plans that will help with capital allocation decisions.
That’s where the TPT comes in. They’ve developed clear guidelines and frameworks for people preparing reports, that explain what kind of information you’ll need to show how your organisation will reach net zero. If you haven’t consulted them yet, here they are:
Harriet was at pains to express just how useful and practical these guidelines have been designed to be. So, if I can be her estate agent here for a moment, a viewing is highly recommended.
The TPT itself was developed by the UK Treasury in line with existing international disclosure standards, with the aim of being the gold standard for private sector climate transition plans. They’ll also be bringing out sector level guidance in due course which will help – and are due to publish their final proposed disclosure framework and implementation guidance this Autumn.
Transition planning in earnest
So what’s it like to actually implement a transition plan? Kim of Barclays brought in her experience of doing so in the financial world. She pointed out that it’s not the bank’s own Scope 1 and 2 emissions that are really significant, but those that its clients produce and the bank finances – ‘financed emissions’, in the parlance.
And so, while the bank will continue doing what it does, providing loans and funding and so forth, it’s also helping to direct finance to the right areas to help us all make the transition to net zero. The bank is also supporting clients to make the transition to low-carbon businesses, and for some that will mean a dramatic change to their business model.
Kim is at the sharp end of stakeholder demands for established methodologies and measuring progress towards net zero, which they’re doing their best to provide – but things are moving so fast that there’s no point waiting for perfect data. It’s getting better all the time, but in the meantime it’s important to use the best available – which includes proxies and estimates in some areas – as long as you are transparent about it. The point is for people to see progress, and where there are pockets that need to go faster.
Another tip: no-one can get to net zero on their own. External factors such as shifting technologies, how affordable and scalable they are, how quickly governments can incentivise change, all affect your transition plan. So it’s important – and in your interests – to be really transparent about your dependencies in reaching your end goal.
Having established that there was no need to make the case for TPTs to our panellists, Ellie of Ashurst spoke about the current state of net zero from the legal perspective. Now this really was, perforce, an alphabet soup of acronyms, so I’ll take a helicopter view.
Summarising the legal position
The US: the SEC’s rule on the enhancement and standardisation of climate-related disclosures would require public companies to disclose their transition plans (TPs) as part of their climate risk management strategy. This can has been kicked down the road rather, and looks likely to be further delayed.
The EU: the EU draft Corporate Sustainability Due Diligence directive, CS3D, has recently received proposals from the European Parliament which would require companies to adopt a transition plan to ensure their business model and strategy are compatible with the Paris Agreement. CS3D is unlikely to be enforced before 2025, so it’s too early to know what form these TPs will take – but all bets are on their being aligned with the EU’s Corporate Sustainability Reporting Directive and the EFRAG’s Sustainability Reporting Standards (ESRS). If you are a large company incorporated in or with a significant presence in the EU, you’ll be required to disclose your TP for climate change mitigation from financial year 2024/25.
The UK: TCFD guidance on metrics, targets and transition plans, published in 2021, sets out the desired characteristics of TPs. While TCFD reporting is mandatory for many large companies in the UK, requirements for other companies to disclose a TP are in the early stages of being rolled out. The FCA’s climate disclosure listing rule for premium listed companies in relation to TCFD/TP guidance has only recently started to bite (applying to financial years beginning on or after 1 January 2022). The FCA has indicated that it will strengthen disclosure rules for listed companies and regulated firms to take account of the output of the TPT, and also of the International Sustainability Standards Board's global disclosure standards, once they’ve been adopted in the UK.
At Ashurst, they’ve compared and contrasted ALL the above requirements – for which someone deserves a medal and a cold wet flannel – and will be publishing their findings. Final point: Ellie seconds Harriet’s call for everyone to check out the (above-linked) TPT’s guidance publications, ‘because they’re really impressive and user friendly!’
So there we have it. With apologies to the British Transport Police, my takeaway from today’s webinar is this:
The apocalypse: see it, say it, sort it.
[1] And indeed, the discussion gifted me two great additions to my collection: GFANZ (Glasgow Financial Alliance for Net Zero), and sandbox (a safe space in which to test services and software).