UK firms need to disclose their net zero transition plans by 2023

Aligning public finance, regulatory and fiscal tools, and regulatory guidance under net zero will be necessary to rewire the global financial system and mobilise the trillions we need to transform the global economy in line with net zero.

Mandatory transition plans

Mark Carney’s Glasgow Financial Alliance for Net Zero (GFANZ) has aligned over $130 trillion in private finance behind net zero – meaning around 40% of the world’s financial assets are in theory linked to the Paris Agreement and its 1.5ºC goal. 

However, given unsustainable financial flows, tackling greenwash is key to making the net zero commitments, made by GFANZ firms, credible. The Chancellor is taking an important step forward by committing to introduce mandatory net zero transition plans for financial institutions and listed companies across the UK as part of their climate reporting duties. This will be rolled out on a similar timeline to the Sustainability Disclosure Requirements, with firms expected to start disclosing their net zero transition plans in 2023.

E3G, an independent European climate change think tank, has strongly welcomed the announcement as it considers net zero transition plans to be one of the key building blocks for a net zero and 1.5°C aligned global financial system. Transition plans are the critical step to ensuring companies and investors actually walk the talk on their headline commitments to net zero.

However, it is vital that there are common standards for what good looks like. The announced Transition Plan Taskforce, which will work to produce science-based guidance for transition plans will be instrumental in fighting greenwash and ensuring all listed companies and financial institutions across the UK put in place high-quality plans. By requiring this for listed companies as well as financial institutions, the UK remains a global leader in green finance. The EU is expected to make similar moves in the coming months. These standards must also be legally enforceable to level the playing field and ensure the entire economy can shift to net zero.

Heather McKay, Policy Advisor at E3G, said: “The Chancellor’s speech has put the spring back into my step at COP26 – with a welcome affirmation of his commitment to creating the world’s first net-zero financial centre. This is critical if we are going to rewire the financial system to prevent climate breakdown. I hope that other countries follow suit.”

Ed Matthew, Campaigns Director, at E3G said: “This is a bold move. Mandatory net-zero transition plans are a key pillar in the financial architecture needed to mobilise the trillions required to get on track to net-zero and achieve a green economic recovery.”

Kate Levick, Associate Director Sustainable Finance of E3G said: “This is a major step forward. To be in line with the science and 1.5°C, financial regulators will have a crucial role to play in enforcing these transition plans to ensure they are credible.”

David Barmes, Senior Economist at campaign group Positive Money, told the BBC that financial firms were still “pouring billions into environmentally harmful projects” and that public institutions are needed to help set standards and deliver greener investment.