UK transition plan taskforce suggests asset owners consider disclosing fiduciary rationale

The UK’s Transition Plan Taskforce (TPT) has suggested that asset owners consider disclosing the fiduciary rationale behind the ambition of their plans, as it launches a consultation on seven sector-specific disclosure standards.

First announced at COP26, the TPT was launched by the Treasury in April 2022 and tasked with developing a “gold standard” for transition plans from UK financial institutions and corporates.

It published its final sector-neutral disclosure framework at the beginning of October and has now followed up with consultations on specific standards for financial institutions, utilities and power generation, oil and gas, metals and mining, and the food and beverage sector. The guidance for financial institutions is split into asset owners, managers and banks.

The documents set out sector-specific context and provide further guidance on how a firm should interpret each of the framework’s disclosure elements. For instance, the guidance for the oil and gas sector suggests firms should consider disclosing the purpose of any new production or exploration activity within its strategy.

The asset owner guidance suggests entities should disclose whether and how their interpretation of fiduciary duty supports the strategic ambition of its transition plan. In doing so, they may refer to regulatory guidance or the PRI’s Fiduciary Duty in the 21st Century report.

The “strategic ambition” is the first of the TPT Framework’s sub-indicators, with entities setting out their objectives and priorities for responding and contributing towards a low-emissions economy.

Other suggestions in the asset owner guidance include considering disclosing the trade-offs between reducing financed emissions by divestment versus engagement, and how climate-related criteria are integrated into the selection, appointment and monitoring of asset managers.

The guidance includes details on how asset owners should consider disclosing engagement and escalation strategies, including asset manager and beneficiary engagement.

Nature and biodiversity feature multiple times in the guidance, with each financial institution getting guidance on the role of and impact on the natural environment in transition planning, as well as nature-specific disclosure suggestions.

For instance, the asset owner document suggests entities consider disclosing on location-based biodiversity exclusions or collaborative engagement activity under initiatives including Nature Action 100.

The asset manager document is broadly similar to guidance for asset owners with a few alterations to account for differences in business strategy and relations. Instead of a manager engagement section, for example, it has a section on client engagement, including possibly disclosing how climate-related objectives are integrated into segregated mandate agreements.

Meanwhile, the banking document suggests organisations disclose the long-, medium- and short-term actions they are taking in their capital markets, lending and advisory activities to achieve transition plan ambitions. The guidance also highlights the evaluation of client transition plans when making decisions, the phase-out of GHG-intensive assets and the integration of climate risk into overall risk profiles and appetites.

The consultation closes on 29 December, with final standards expected in February.