Influencing the UK’s opportunity in transition finance
On 25 July, ICAS co-hosted an exclusive workshop with the Transition Finance Market Review (TFMR) Secretariat. We take a look at the key takeaways from this important engagement activity.
As stated in the UK government’s 2023 Green Finance Strategy: “The global transition to a resilient, nature-positive, net zero economy will see trillions of pounds reallocated and invested into new technologies, services and infrastructure. There are huge opportunities for the UK’s financial and professional services industry in this transition.”
This strategy also announced the commissioning of a review into how the UK can become the best place in the world for raising transition capital, leading to the launch of the TFMR in January 2024.
This review aims to explore the best ways to:
- Scale high-integrity transition finance in the UK
- Maximise the opportunities for UK-based financial services to help companies access capital to decarbonise; and
- Position the UK’s professional services ecosystem as a global hub for transition finance.
ICAS engagement
As part of the review, the TFMR Secretariat has carried out engagement activity with a variety of stakeholders to seek views on various matters, including the current reporting landscape. We were therefore delighted to co-host a workshop to ensure that our members were able to share their insights. A small group of members and friends with a vested interest in the preparation and use of sustainability disclosures were invited, with the discussion following Chatham House rules.
During this workshop, we considered whether frameworks – including the Transition Plan Taskforce (TPT) Disclosure Framework that was launched in October 2023, and sets out good practice for robust and credible transition plan disclosures – let companies effectively communicate their transition journeys and allow users to evaluate them. We also explored how international reporting approaches are aligned, and the best ways to encourage transition-related activity and investments.
Takeaways
We are pleased to share the following takeaways, providing a snapshot of the key points from the rich and enthusiastic discussion that took place on the day:
1. Attendees agreed that transparent reporting of what has and hasn’t been done by an entity regarding its transition is important. However transparency brings about scrutiny, and potentially criticism, which can result in a hesitancy to be transparent.
2. In an ideal world, frameworks would have started by placing an emphasis on transition planning, rather than transition reporting. Regardless, ideally there should be a balance between transition strategy and action plans, and their appropriate disclosures.
3. Net zero emissions by 2050 are what’s required to achieve the Paris Agreement, which concerns keeping global warming to no more than 1.5°C. There’s an acceptance that few entities have managed to devise a total transition pathway all the way to 2050.
4. Reporting on impact is especially important for entities with a net zero target. Other reporting, like the use of financial materiality, could better serve entities with goals that don’t concern impact.
5. Sometimes there is a disconnect between sector and country transition plans. For example, is it optimal to spend capital on electrifying oil and gas rigs, when the same capital could be redeployed to achieve bigger decarbonisation wins elsewhere in the country?
6. The International Sustainability Standards Boards (ISSB) sustainability standards can help drive strategic thinking, but may not be best for transition finance because they don’t adopt double materiality.
7. While the Corporate Sustainability Reporting Directive (CSRD) introduces double materiality, which requires much more engagement with the supply chain, it can result in significant amounts of data - not all of which will be directly useful.
8. There’s concern that there is enough of a misalignment between ISSB and CSRD to cause unwarranted burden. The reliefs offered in the ISSB standards may add further confusion and misalignment.
9. Assurance of transition-related disclosures brings about many upsides, including driving consistency across the market, helping to upskill in-house teams and improving the credibility of disclosures (particularly for near-term matters). It becomes problematic to apply assurance to forward-looking items.
10. The Transition Plan Taskforce (TPT) guidance – which helps to report against ISSB standards and goes further – was seen as potentially transformational.
Next steps
The TFMR Secretariat will collate the responses from all of their engagement activities, and a report with recommendations is expected to be published later this year.
