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UK releases transition plan disclosure framework

Transition Plan Taskforce logo
The Transition Plan Taskforce expects companies to explain why they are using carbon credits and the degree to which they will use them (Photo: Layton Thompson)

Voluntary carbon market bodies back the UK Transition Plan Taskforce’s framework, including guidelines for the use of carbon credits

The Transition Plan Taskforce, the organisation launched at COP26 in 2021 by then-chancellor Rishi Sunak as part of the UK government’s green agenda, has released guidelines designed to help businesses set their transition plans and respond to imminent new transition regulations. 

The government has pledged to mandate the publication of transition reports and a consultation is expected this year, while the Financial Conduct Authority will consult on transition plan disclosures for listed companies that are anticipated to begin in 2026.

The framework applies three principles: “ambition”, “action” and “accountability”, which cover areas including a company’s business model and value chain, its transition strategy, metrics and governance. The TPT said that the framework “builds on the work” of the International Sustainability Standards Board and aligns with the ISSB’s climate-related standards, IFRS S2. 

The taskforce will release sector-specific guidance for consultation on November 13.

Speaking at the framework’s announcement on October 9, London Stock Exchange Group chief executive David Schwimmer said: “If today’s disclosure framework is widely adopted and ultimately made a reporting requirement across the economy, it can play a key role in delivering the UK’s climate and sustainability goals.”

Within the framework’s accountability pillar, which issues recommendations over metrics, the TPT has set out guidelines for companies’ uses of carbon credits. Businesses will be expected to disclose their intentions surrounding their uses of credits, as well as details concerning the number of credits they have traded, and provide this information at least annually. 

The Voluntary Carbon Markets Integrity Initiative welcomed these recommendations. “VCMI is pleased to see the Transition [Plan] Taskforce recognise carbon credits as an important tool that can be incorporated into corporate transition plans,” its executive director, Mark Kenber, said.

William McDonnell, chief operating officer of the Integrity Council for the Voluntary Carbon Market, told Sustainable Views that the framework “recognises that it is essential for businesses to disclose the ‘credibility and integrity’ of the credits they use”.

A ‘wild west’

Companies’ use of carbon credits as part of their approach to sustainability has become contentious of late. VCMs allow companies to offset their emissions by buying credits from initiatives designed to reduce or remove greenhouse gases from the atmosphere, but a lack of regulation has led to the space being viewed as a “wild west”.

Last year, Shell lost an appeal against the Dutch Advertising Code Committee, which decided that an advertisement offering compensation for fuel emissions via carbon offsets was misleading.

The TPT expects companies to explain why they are using carbon credits and the degree to which they will use them to achieve what it terms the transition plan’s “strategic ambition”, which captures goals and priorities for taking part in the climate transition.

Among these rules, companies should disclose the number of credits they sell, buy and retire, and which third-party organisation has or will verify or certify these credits. The methodology used for certifying the credits should also be published, along with the type of carbon credit used and how it will achieve any underlying offset.

Companies should explain how their carbon credits impact wider society and the natural environment, and issue information needed for general financial reports. This information should be reported at least every year.

“Credible transition plans require full transparency on the basis of comprehensive disclosure rules that include all corporate climate action, including the use of carbon credits,” Kenber said. 

McDonnell added: “While businesses’ priority must be to decarbonise their value chains, the TPT disclosure framework recognises that carbon credits have an important complementary role to play.”

However, Barbara Haya, director of the Berkeley Carbon Trading Project at the University of California, Berkeley, noted that the “[TPT] disclosure framework doesn’t require very basic information needed to understand the quality of credits used”.

“Many carbon credits on the offset market represent only a fraction of the carbon benefit claimed. Stakeholders need to know the specific projects [carbon credits refer to] and how carbon credits are calculated to be able to assess the veracity of the credits and company claims that use them,” she said. She added that a California bill recently signed into law requires the public disclosure of such information for any offsets used or sold in the state from January 2024.

This article was updated after publication to include Barbara Haya’s comments.

A service from the Financial Times