Mandatory Climate Transition Plan Requirements require companies to take action at both a strategic and operational level. Companies must consider how the transition will impact their business model, products offered, production processes and distribution methods. They must also consider a top-down and bottom-up approach, and make decisions that will impact their OPEX and CAPEX spend. The transition is an opportunity for boards to make strategic decisions that will impact the entire business model.
Just transition
The UK government has announced the intention to make climate transition plans mandatory for all firms. While some companies are already doing this, it is a new practice that will require robust guidance. The Chancellor’s announcement has prompted a Taskforce to be established to advise on the design of a transition plan for all sectors. In the interim, the taskforce is developing a set of key elements of a good transition plan.
The aims of the plan are to assist companies in making strategic and operational decisions regarding their response to climate change. The company must consider how the transition will impact its business model, which means examining how its products are produced, how they are distributed, and more. The company should also consider top-down and bottom-up approaches to make the transition a success. These are just a few of the strategic decisions that boards need to make to ensure that their companies are meeting the goals of the Paris Agreement.
A good transition plan should also contain targets to make a positive impact on the climate. These could include a net-zero commitment or targets to reduce greenhouse gases. It should also contain actionable steps and interim milestones. In addition, the plan should include the involvement of affected communities and stakeholders.
The goals of a climate transition plan should be based on the latest climate science recommendations. The goal should be to reduce greenhouse gas emissions by half by 2030 and to achieve net-zero emissions by 2050. By doing so, companies can ensure that their operations do not cause any damage to the climate.
Just transition beta indicator
The Climate Action 100+ initiative recognises the importance of the just transition to the global transition to net-zero emissions, and is incorporating a Just Transition indicator into their benchmark disclosure framework by 2022. The indicator is based on the Paris Agreement and the International Labour Organization’s Just Transition Guidelines and was developed in consultation with global topic experts.
The Just Transition beta indicator requires companies to develop a decarbonisation plan and to engage with relevant stakeholders, including workers, communities, and actors in their supply chains. It aims to ensure that a company acknowledges the social impacts of climate change and decarbonise in a fair way, while retaining jobs and supporting vulnerable communities.
The Just Transition framework calls for a decarbonised and climate resilient global economy. It also calls for the creation of good jobs, promoting social inclusion, and eradicating poverty. This approach to tackling climate change also addresses the issue of gender equality and intergenerational equity, which are fundamental pillars of corporate sustainability.
Investor engagement in the Just Transition initiative is becoming increasingly visible in the form of shareholder resolutions and dialogue. For example, the World Benchmarking Alliance coordinated a multi-stakeholder investor letter calling on oil and gas companies to consider mitigation of social impacts, engage in dialogue with stakeholders, and develop just transition plans. A more recent shareholder resolution in 2022 has been filed by the International Brotherhood of Teamsters. It received 16.5% support, demonstrating the importance of the issue.
Just transition principles
Just transition principles are important for businesses considering green projects. However, there are risks that come with green projects, too. Businesses should consider just transition issues and have a robust social dialogue, even if the project is green. Just transition principles should be reflected in corporate CTPs and other common legal documents. This article offers practical advice on how to incorporate them into these documents. It also highlights ways to incorporate just transition principles into existing legal documents.
Climate change has become a growing concern for the global community. The current rate of global warming is unsustainable, and we must transition to a low-carbon economy while ensuring that the transition is fair and equitable. We need to make sure that we address the needs of marginalized groups and workers in the process. This includes creating jobs that are good for society and not just a profit for corporations.
Financial policy is also critical in ensuring a just transition. The ILO’s Just Transition Guidelines outline a variety of public finance priorities, including macro-economic strategy, industrial policy, regional policy, and education policy. In addition to financial policy, just transition principles include social and environmental justice.
Businesses should also consider human rights and the human rights of stakeholders during the transition process. In addition, they should consult affected communities, workers, and other stakeholders. Moreover, they should consider the legal risks of their operations. For example, they should consider the risks of climate-related lawsuits and labour law violations. They should also consider the implications of non-compliance with new regulations and legislation.
Just transition principles should be incorporated into mandatory climate transition plans. In Scotland, the government has begun incorporating these principles into its climate plan. The Scottish government has also set up a Just Transition Commission that will be responsible for recommending climate action targets. This commission will work to ensure that the plans are affordable and implement just transition principles.
Sub-indicators of decarbonisation
Companies are required to account for the risks that climate change will present to their businesses. Without adequate consideration, they could find themselves with stranded assets, displaced workers, and a weakened social license to operate. In addition, shifting macroeconomic conditions will affect individual companies and their investment portfolios, and investors want to know that companies are preparing for the transition just as much as they are planning to meet the targets of the Paris Agreement.
The Climate Action 100+ investor coalition is committed to helping companies achieve a just transition. It has endorsed an initiative called the Just Transition Indicator. It was designed to measure how companies communicate and take action to reduce carbon emissions and other climate-related impacts. It is based on the Paris Agreement and the International Labour Organization’s Just Transition Guidelines. The initiative was developed in consultation with global experts.
In addition to requiring banks to disclose their climate plans, the Institute for Climate Economics has called on the EU to bolster supervisory powers and integrate transition plans into their supervisory review process. This would allow supervisors to use stronger policy levers such as additional capital requirements. It is hoped that this initiative will lead to a more transparent banking sector. And it is not hard to see why banks should be more proactive in addressing climate risks and making the transition to a low-carbon future a reality.
To ensure a safe transition, organizations need to understand the science behind climate change and decarbonisation. They also need to assess the risks and opportunities of this transformation. These risks and opportunities are constantly changing, and they require ongoing measurement and assessment capabilities.
Timeframes for disclosures
In the UK, the Chancellor recently announced that companies will be required to publish transition plans by 2023. Under the proposed rules, listed companies, asset managers and regulated asset owners will be required to disclose these plans. Currently, only one-third of companies have disclosed low-carbon transition plans, and fewer than 1% of them report on all 24 key climate transition plan indicators. Registrants will have to update their disclosures annually, and disclose progress toward their goals.
Registrants will have to examine their disclosure practices and determine if they have the necessary expertise to provide these new disclosures. In addition, climate-related disclosures require significant judgment and subjectivity, which may make them difficult to audit. Additionally, companies may need to hire attestation firms, auditors and advisers with expertise in climate-related issues. They should also integrate litigation counsel into their planning and disclosure practices. In addition, companies may face litigation relating to the application of materiality tests. Activist investors may also target companies with increased disclosures.
Registrants must also disclose the processes they use to identify climate-related risks and assess their materiality. Companies are required to describe how they identify climate-related risks and identify transition-related risks, as well as how they use their policies to mitigate or offset these risks.
Disclosures under mandatory climate transition plan requirements will likely be impacted by the attestation requirement. Companies will need to use new audit procedures for these disclosures, which will be made in notes to audited financial statements. Moreover, these disclosures will need to be audited at the same time as year-end financial statements, which may create resource constraints. Smaller companies may find this burdensome.
