The UK has recently set a number of legally binding targets to transition to net zero energy. Companies will have to decide how they will adapt to this new economy-wide target, and will have different overall targets. Good transition plans should clearly state these decisions and quantify milestones and interim targets. This will help firms to measure their progress and determine whether their plans are realistic.
Plan to make it mandatory for companies to publish a clear, deliverable plan on how they will decarbonise and transition to net-zero
The UK has been a trailblazer in decoupling economic growth from carbon emissions. The UK has also set ambitious climate targets. Its latest NDC targets call for a 68 per cent reduction on 1990 levels by 2030. Yet there are challenges ahead.
In addition to the adoption of existing technologies, achieving net-zero emissions by 2050 will require the rapid deployment of new technologies that are not yet on the market. To achieve this, major innovation efforts will need to take place over the next decade to bring these technologies to market. While most of the emissions reductions through 2030 will come from technologies that are available today, half of the emissions reductions by 2050 will come from technologies that are still in prototype stage. This means that companies that have a heavy carbon footprint will be more likely to be in the prototype phase of their plans.
As part of the UK’s commitment to a carbon-free economy, the government has published a number of policies to help businesses and industries make the transition. These policies will lower the reliance on fossil fuels and support the transition to greener technologies. This will help the UK to reduce its energy dependence and reduce the risk of high energy prices. It will also help strengthen energy security.
The government plans to make transition plans mandatory for companies by 2023. A taskforce will be set up by the government, industry, academia, regulatory bodies, and civil society to help companies prepare a comprehensive plan. The taskforce will develop a set of new standards, including the scope of the transition plan, the metrics associated with it, and templates tailored to specific sectors. The taskforce will publish a report by the end of 2022.
The goal of net zero is not cheap nor easy. However, investors are valuing technologies that drive decarbonisation. However, markets alone will not deliver the capital mobilisation required to make a net-zero transition. The government’s strategy must identify levers that will enable capital to flow.
Net-zero is achievable with the right innovation and policies. The UK needs to harness the power of low-cost technologies to achieve net-zero. It needs to harness the strengths and weaknesses of the industrial sector and focus on technology innovation and deployment.
In the UK, a groundwell of climate action is emerging. For instance, Scotland has set a net-zero target for 2045. Major strategies have focused on the role of national government, but the key to a successful net zero strategy is to define the roles of all stakeholders. This includes local government and the energy of regional governments.
The UK government has outlined five social values for public sector procurement. These include health, equal opportunity, wellbeing, and combatting climate change. The aim is to make COP26 an important and impactful summit. This is crucial to the UK’s post-Brexit international and economic future.
Taskforce to develop a gold-standard framework for sector-neutral transition plans
The UK Transition Plan Taskforce (TPT) has launched a call for evidence on the key principles of a credible transition plan, which they hope will create an industry-wide benchmark. The principles include identifying a sector-neutral transition plan, establishing a clear governance framework, and ensuring that promised actions are implemented.
The UK Government has mandated the Transition Plan Taskforce to develop a ‘gold-standard framework’ for sector-neutral climate transition plans. This framework will be used to assess the effectiveness of climate plans produced by companies, including the financial sector. The UK Government intends to publish a draft framework towards the end of this year, with a final version due to follow in early 2023.
The Taskforce will also assist in the development of UK regulations on the disclosure of climate-related information. This includes ensuring that firms disclose climate-related attributes in their financial products. The government has also introduced a new regulation that will require some financial institutions to publish a sector-neutral transition plan as early as 2023.
Impact on companies’ valuations
The UK government is seeking to make the UK a global green finance hub. This will require companies to publish transition plans with science-based data that demonstrate how they will protect and restore nature. This will provide decision-useful information to investors and channel finance towards net zero, nature-positive economic activities.
The UK government has established a taskforce that will write new rules for listed companies and financial firms. These rules will require companies to transition to a net-zero economy by the year 2050. The UK is aiming to become the world’s first financial centre to align itself with the net-zero transition agenda. The taskforce will also develop measures to combat greenwashing and help companies implement “investable” transition plans.
UK manufacturers have a low starting point for the market for zero-carbon-compatible equipment. Their share of capital formation globally is less than half that of the EU, and they have a weak domestic value chain. Nevertheless, the net-zero market is projected to yield PS200 billion between 2021 and 2030.
A more holistic approach to transition plans can secure their success, create new channels for engagement, and help companies lower costs in the long term. Already, many companies are incorporating nature-related goals into their sustainability reporting. CDP, for example, has reported that over three thousand companies have reported on their water and forest risks by 2021. This demonstrates the need for a comprehensive approach to climate and nature.
Despite the UK’s commitment to becoming a net-zero financial hub, this move is not easy. It will require a lot of investment, innovation, and coordination. The timing of the necessary infrastructure, training, and standards is crucial. The UK will become a global leader in the green finance arena.
The UK government’s announcement at COP26 in Glasgow is an important step in the transition process. The new law will require all large companies to publish transition plans that will demonstrate their commitment to the new standard of carbon reduction by 2050. These transition plans will include detailed emission reductions across their operations and value chains. HM Treasury is creating a Task Force to ensure that these plans meet the gold standard for transition plans. The government is also requiring these plans to be scientifically valid and based on evidence.
TCFDs will require companies to disclose emissions from their supply chain and their customers. They must also identify which carbon emissions are under their control. These disclosures will be mandatory starting in April 2023. By 2023, companies will have to include these disclosures in their full-year annual reports.
Getting the right business plan is essential to success. Creating a good transition plan means understanding the potential risks, opportunities, and challenges of net-zero business. It also means identifying profitable propositions and growth opportunities.
