Now COP27 is out the way it is time to start preparing for 2023
21st November 2022
What happened at COP27
A highlight of this year’s COP was the unanimous consensus among nearly 200 countries to establish a loss and damage fund to help poor countries most vulnerable to climate-fuelled disasters. Despite this positive development, little progress was made on accelerated climate action. A promising proposal led by India to wind down consumption of all fossil fuels, not just coal, was sunk following opposition from oil and gas producers such as Saudi Arabia and Russia. The overall consensus is that this COP was not all bad, but it certainly wasn’t great.
However, for many UK companies now is not the time to dwell on the diplomatic trials and tribulations in Egypt. Announcements made on the periphery of COP will have a more immediate impact in 2023 and will guide how the private sector begins to take more comprehensive climate action in the coming years.
Looking beyond Sharm El Sheikh
During the first week of COP the UK’s Transition Plan Taskforce (TPT) published its much-anticipated disclosure framework. The TPT was launched by the UK government in April 2022 to encourage the development of “gold standard” climate transition plans by UK listed companies and financial institutions from 2023, building on the Task Force on Climate-Related Financial Disclosures’ recommendations.
While many companies have already set and are working towards net zero targets, the framework aims to help companies disclose “useful and consistent” transition plans to drive the private sector towards net zero. It also aims to reduce the risk of unintended consequences of focusing on net zero targets in isolation, which will be essential for accelerating an economy-wide transition.
The framework is guided by three principles: Ambition, Action and Accountability, which act as the building blocks for the development of credible plans that avoid the prioritisation of carbon credits and adequately consider the need for climate resilience, among other measures.
Tackling the Accountability principle should be an immediate priority for companies as it concerns the actual delivery of transition plans through clear governance mechanisms along with consistent, comparable and decision-useful reporting and verification. If a company doesn’t get this right, they risk losing trust from their stakeholders and their ability to action their entire net zero transition will be cast into uncertainty.
Evolving climate reporting in 2023
Any company wishing to maintain or build stakeholder support during the transition should therefore use 2023 as an opportunity to ensure their climate reporting and disclosure goes beyond simply a compliance and tick-box exercise. For example, instead of just reporting on the climate-related policies they have in place, they should begin reporting on how they monitor or perform against these policies as well as how they manage risk. This can provide clarity on how decisions made by leadership are directly leading emissions reductions, in turn delivering a more useful and immediate view on a company’s overall transition and role in the future net zero economy.
For any companies looking to begin their climate reporting in 2023, success will be found in avoiding the disclosure of generic information and only reporting after undertaking a materiality assessment. They should also report according to a strong organisational narrative as this will help create a differentiated picture of their business, leading to better investor understanding and improved stakeholder perception.
Other helpful guides
In addition to the TPT disclosure framework, companies looking to adopt best practice should consider other announcements made during the COP27 fortnight. This includes the ISO’s Net Zero Guidelines, which provide common terms and definitions regarding net zero transitions alongside specific recommendations on net zero guiding principles for all organisations. The UN’s ‘Integrity Matters’ report also provides further guidance on credible climate action that avoids greenwashing.
The road ahead
While COP27 may have done little to encourage international alignment on tackling climate change, the priority in 2023 and beyond for many UK-based private sector organisations is clear: consistent and comparable net zero transition reporting that goes beyond the approach taken by many today.
Once in full effect, the TPT disclosure framework will help promote the companies taking a best practice approach to climate change while highlighting those with poor reporting practices or who might be at risk of not delivering on their net zero commitments. This in turn could have significant implications regarding investor and customer sentiment and could also lead to increased media scrutiny.
If this is something you would like to avoid, then please get in touch. While reporting can present significant internal resource, having an outside perspective and a view regarding how you report in comparison to your peers can deliver clarity on where you are and where you need to be.