The UK’s mandatory transition plan requirements: a chance to get ahead of the curve

Organisations that act now to comply with the UK’s mandatory transition plan requirements have a chance to get ahead of the curve, says Sally Vivian, Practice Lead, Climate Change, Sustainability and Resilience for Europe and India.

During last year’s COP26 conference, the UK government announced that asset managers, regulated asset owners and listed companies will be required to publish by 2023 net zero transition plans that set out how they will decarbonise to meet national 2050 net zero targets. This is the government’s first step towards realising their ambition to make the UK the world’s first Net-Zero Aligned Financial Centre.

By setting such a strict deadline, the government is sending a clear message to the private sector that organisational-level net zero targets alone are not enough: for the UK to meet its legally binding national net zero commitments, more action is needed at every level. In time, the government intends to make the publication of transition plans mandatory, but we expect the impacts will reach supply and value chains well before then.

However, there is not yet a commonly agreed standard for what a good quality transition plan looks like. The government intends to set up a high-level Transition Plan taskforce, “to develop a ‘gold standard’ for transition plans and associated cutting edge metrics,” but it is not expected to be operational until the end of 2022. Those organisations that choose to comply sooner rather than later may need extra support and guidance, but will find themselves ahead of the curve if they do.

What does a good transition plan do?

A transition plan needs to set out high-level targets the organisation is using to mitigate climate risk, including greenhouse gas reduction targets (e.g., a net zero commitment) as well as interim milestones and actionable steps.

A good transition plan reflects and considers the full scope of an organisation’s carbon emissions (those that they have direct control over as well as those that they can influence). A transition plan isn’t just about engineering solutions; a transition to net zero also requires changes to business processes and culture. Consequently, a good plan also needs to have a clear set of measurable and timebound actions, robust and effective governance to monitor and review progress as well as effective engagement and communication activities to support the organisation and culture change that will be required for delivery.

A targeted approach

Once a company has a good understanding of its emissions, then resources can be directed to the interventions where the organisation can create the most change.   Part of this process involves understanding what parts of an organisation’s carbon emissions can be reduced through external factors or through the actions of others. For example, operational carbon emissions associated with electricity use of built assets on a commercial campus will eventually be addressed through decarbonisation of grid electricity. The same logic applies to key suppliers or partner organisations who may be signed up to their own sector-specific decarbonisation targets.

By stripping away relevant externalities in this way, it is possible to target components of an organisation’s carbon emissions that are not yet covered by other commitments. Using this targeted approach to create an action plan is highly effective as it provides greater confidence that money being spent is having the most impact.

Individual company responsibility is important, but so is collaboration

While it’s important to establish which carbon emissions an organisation has control of and greatest influence over, it is equally important for organisations to recognise that it is not possible to meet their net zero targets in isolation.

A good transition plan will identify other parties who could affect that control and influence, such as utilities companies, suppliers, customers, local authorities or national transport bodies.  These parties could have a positive effect through their own interventions, or have a negative effect by inadvertently creating barriers to decarbonisation.

As sustainability advisors within a large global infrastructure consultancy firm, we are able to provide insights on sector specific carbon emissions and possible reductions. We can also connect with our colleagues in power, water, transport, and civil infrastructure sectors that provide services across the economy to feed intelligence relating to common aspects of carbon emissions into the transition plans we prepare for our clients. As we have sight of these complex interdependencies, we can identify where parties might work together to build integrated solutions that are mutually beneficial.

Collaboration and engagement is essential if the common goal of reaching net zero is to be achieved, particularly in respect of hard-to-address value chain carbon emissions. With this in mind, any cross-sector knowledge and capability that can be carried through from strategy level into implementation brings significant added value.