If we are to avoid the worst impacts of climate change then business needs to contribute to that solution. As more businesses set science-based climate and nature targets, they will also face the challenge of creating a credible net-zero strategy that matches ambition with commercial reality. The development and evolution of corporate transition plans is therefore core to the global transformation to a low-carbon economy that must take place.

Increasing regulation, including the Task Force on Climate-related Financial Disclosures (TCFD), Europe’s Corporate Sustainability Reporting Directive (CSRD) and the International Financial Reporting Standards (IFRS®) International Sustainability Standards Board (ISSB), are demanding that companies create, communicate and act on robust plans to reduce climate-risk exposure – and disclose the risks to climate and nature emerging from its own business operations.

Two years ago, the UK government published the Greening Finance Roadmap with a commitment to strengthen sustainability reporting requirements for companies, including the publication of climate transition plans. At COP26, the UK Chancellor further committed the UK to becoming the world’s first Net Zero-aligned Financial Centre supporting a net zero economy. The Chancellor also confirmed that the publication of transition plans would become mandatory. The Transition Plan Taskforce was subsequently launched to develop best practice transition plan disclosures. In parallel, the Financial Conduct Authority (FCA) has signalled its intention to strengthen its requirements for transition plan disclosures in line with the TPT Disclosure Framework.

The launch of the Transition Plan Taskforce Disclosure Framework to support corporate climate disclosure is a fundamental building block for businesses aiming to advance their climate journey and communicate to investors and stakeholders what taking action will mean to the business. What is clear is that the development of a credible net-zero transition plan is good for business. It can help drive transparent and effective engagement with investors and stakeholders by clearly showing how the business plans to tackle exposure to climate- and nature-related risk – both transition and physical – as well as opportunities emerging from the move towards a low-carbon future.

Meeting future climate goals at the scale necessary requires new commitment by corporates to start developing and implementing their transition plans. The good news is that many of the building blocks are already in place. For example, 8,300 companies and 5,500 financial institutions have signed the UN’s non-state actor initiative to develop stronger and clearer standards for net-zero emissions pledges. The Glasgow Financial Alliance for Net Zero (GFANZ) are already turning commitments into action with the first wave of private sector transition plans being disclosed. Similarly, the disclosure framework launched this week by the TPT was developed with input from more that 500 organisations and was designed to align with existing standards to foster consistency in disclosure information internationally, such as the recommendations from the ISSB. The TPT builds on existing frameworks and is designed to provide more depth and detail for preparers and users of transition plans. The TPT Disclosure Framework is supported by the TPT Sector Summary that supports organisations to navigate transition plans across the economy and is open to comment until 24th November.

Opening the launch event, David Schwimmer, Group CEO, London Stock Exchange Group (LSEG) said: “We’re seeing good progress being made on climate disclosures in the UK and internationally, but it’s still early days.” He noted the worrying shortfall between the number of companies disclosing net-zero targets and the number setting out strategic steps to reach them with credible transition plans.

While organisations look to either improve their existing transition plans or embark on their plans for the first time, what is becoming clear is that the process is starting to deliver valuable business insights. Industry representatives from several large organisations, including Nat West, LGIM, Diageo and John Lewis Partnership, shared their experience of developing transition plans at the London Stock Exchange event. The conclusion from these different experiences is that companies will need to develop transition plans, but this should not be seen as a burdensome task, but as a positive opportunity to build future resilience from transition risk into the business. If your business does not yet have a transition plan it is now time to start developing one.