This browser is not actively supported anymore. For the best passle experience, we strongly recommend you upgrade your browser.
| 4 minutes read

Publication of the UK Transition Plan Taskforce's sector guidance

TPT sector guidance published

The Transition Plan Taskforce (TPT) is a UK initiative, launched by HM Treasury in March 2022, that aims to develop good practice for transition plan disclosures for finance and the real economy, in order to support the UK's legally binding net zero and climate resilience goals. The TPT has published a further suite of guidance documents to support the Disclosure Framework itself.

Further to our update of 1 February 2024 regarding the extension of the UK Transition Plan Taskforce’s mandate, the TPT on 9 April 2024, published sector guidance to give practical guidance for 30 financial and real economy sectors. 

The guidance is split into two types: the TPT’s Sector Summary guidance which provides an overview of key information and guidance sources for a range of sectors; and, TPT Sector Deep Dive guidance which aims to help preparers interpret the Disclosure Framework as it applies to their specific sector, one of which is for the asset management industry.

The figure below details the transition plan disclosures landscape: 

Sector Summary guidance

The Sector Summary guidance document provides an overview of 30 financial and real economy sectors and their decarbonisation levers, metrics and targets, and key sources of guidance. It is based on existing third-party guidance, and is designed to support a high-level interpretation of the three principles of the TPT Disclosure Framework: 

  1. Ambition;
  2. Action; and
  3. Accountability. 

The Sector Summary's decarbonisation levers are intended to inform an entity's Implementation Strategy and Engagement Strategy, which are part of the Action principle. Similarly, the metrics and targets should inform disclosures within the Metrics & Targets element, aligning with the Accountability principle. While the Sector Summary is not exhaustive, it provides a solid foundation for entities to develop their transition plans and consider additional material information for their financial reports.

Sector Deep Dive guidance 

The Asset Managers Sector Deep Dive guidance provides more detailed sector-specific guidance for preparers of transition plans that are operating in the asset management sector, which includes both standalone asset management entities and asset management divisions of larger financial services groups. The guidance is intended to help preparers interpret the TPT Disclosure Framework and to complement existing guidance from other sources, such as the International Sustainability Standards Board (ISSB), the Glasgow Financial Alliance for Net Zero (GFANZ), and the Institutional Investors Group on Climate Change (IIGCC). 

Sector context

The guidance explains the role and responsibility of asset managers in mobilising finance for the transition, identifying and managing climate-related risks and opportunities, and contributing to the economy-wide transition. It also highlights the need for asset managers to take a strategic and rounded approach to transition planning, considering three inter-related channels: decarbonising the entity, responding to the entity's climate-related risks and opportunities, and contributing to an economy-wide transition. Moreover, it outlines how asset managers should identify, assess and take into account the impacts and dependencies of their transition plan on their stakeholders, society, the economy, and the natural environment, that may give rise to sustainability-related risks and opportunities. 

Scope of the guidance

The guidance applies to asset managers' full range of operations and activities, including their investment and non-investment activities, and all relevant asset classes. It also acknowledges the dependencies between asset manager and asset owner transition plans, and the need for entities to apply the guidance as appropriate to their specific business model. The guidance provides additional detail and suggestions for disclosures for 11 out of the 19 sub-elements of the Disclosure Framework, where there is scope for additional sector specificity. 

Interpreting the Disclosure Framework

The guidance provides suggestions of disclosures that entities "should consider disclosing" for each of the 11 sub-elements addressed, as well as further considerations and references to external guidance that preparers may find useful. The suggestions of disclosures are not intended to replace or override the Disclosure Recommendations in the Disclosure Framework, but to complement and interpret them for the asset managers sector. 

The suggestions of disclosures cover topics such as: 

  • the entity's objectives and priorities for reducing its financed emissions, managing climate-related risks and opportunities, and using the levers and capabilities it has available to embed and accelerate the transition; 
  • the entity's actions and policies to change its investment process, products and services, and engagement activities; 
  • the entity's metrics and targets to drive and monitor progress towards its Strategic Ambition, including financial, GHG, and governance, business and operational metrics and targets; and 
  • the entity's governance and oversight of its transition plan, including its culture, incentives, and skills. 

Actions for asset managers

The publication of the Asset Managers Sector Deep Dive guidance provides an opportunity for asset managers to review and enhance their transition plan disclosures, in line with the TPT Disclosure Framework and the sector-specific guidance. Asset managers could consider taking the following actions in light of the publication of the guidance.

  • Assess the current state of their transition plan disclosures and identify any gaps or areas for improvement, using the TPT Disclosure Framework and the guidance as reference points.
  • If no such transition plan exists, market participants can consider the sort of planning the firm has already undertaken with respect to climate risk, perhaps in existing risk registers, risk management processes and existing disclosures (e.g. pursuant to SFDR or TCFD). This existing work can be bolstered with the tools provided for by the TPT. 
  • Engage with stakeholders, including asset owner investors, investee companies, industry counterparts, and other relevant actors, to communicate their expected transition plan disclosures and solicit feedback and input.
  • Align transition plan disclosures with existing and emerging standards and frameworks, such as the ISSB Standards, the GFANZ framework and guidance, and the IIGCC guidance, and leverage the resources and tools available from these and other sources.
  • In due course, monitor and update transition plan disclosures on a regular basis, reflecting the dynamic and iterative nature of transition planning, and report on their progress and performance against any disclosed metrics and targets. The FCA are clear in their intention to promote transparency and accountability to foster market integrity in this area. 

Conclusion 

The Government has indicated that they will move towards making transition planning mandatory and these guidance documents represent new tools in the tool box to assist when that ambition becomes a reality. 

In the interim many market participants will be considering using the new guidance on a voluntary basis and those preparing TCFD reports for the FCA deadline of 30 June 2024 may choose to review the guidance to help them with the elements of transition planning incidental and complementary to that process.

Tags

esg, investment management, esg strategy risk and technology, sustainable capital, alternative afm, institutional asset managers, article, esg