The UK Commitment to Transition Plans and Nature-based Solutions
27th January 2025
A recent UK Parliament Environmental Audit Committee Report on finance and net zero recommended the Government should “phase in compulsory TNFD disclosures” and “take steps to incorporate into the [TPT] framework[1]The financial sector and the UK’s net zero transition: Government Response to the Committee’s First Report the contribution by a company towards halting and reversing nature loss”. The TPT noted that “whilst international alignment should be strived for, it should not delay the UK from implementing mandatory TNFD-aligned disclosures, given its ambition to position the UK as a world leader on green finances.”[2] The-Future-for-Nature-1.pdf This is a sentiment now reflected by the new UK Chancellor (see below).
Companies should prepare and seek early adopter benefits
Companies should prepare for these changes. Early adopters may benefit from disclosing transition plans, capturing market opportunities, and building transition planning capabilities as regulations evolve.
UK Chancellor, Rachel Reeves recognises the greatest long-term global challenge
On 14 November, the UK Chancellor, Rachel Reeves, addressed the Bank of England with recommendations to the Financial Policy Committee (FPC) and specified the new Government’s economic policy.[3]Remit and recommendations for the Financial Policy Committee: November 2024 – GOV.UK The Bank of England Act 1998 allows the Chancellor to make recommendations on the matters the Committee should regard as relevant and the Committee’s responsibility concerning achieving His Majesty’s economic policy.
It is significant as she has recognised climate change as the “greatest long-term global challenge that we face.“[4]Remit and recommendations for the Financial Policy Committee: November 2024 – GOV.UK
UK economic strategy to accelerate the transition
It is further significant in that she defines the Government’s economic strategy as accelerating the transition to a climate-resilient, nature-positive, and net-zero economy.
It requires the Committee to regard the risks posed by climate change, including physical and transition risks, as relevant to its primary objective. The Bank should consider how these risks could impact financial stability over the near and longer term, including, where appropriate, through its stress testing frameworks, ensuring that risks stemming from possible and severe global climate scenarios are reflected in its analysis of climate risks and that sufficient time horizons are considered.
Materiality of nature-related financial risks for its primary objective
It is additionally significant that “Over the next year, the Committee should continue to consider the materiality of nature-related financial risks for its primary objective.”[5]Remit and recommendations for the Financial Policy Committee: November 2024 – GOV.UK
This directive, outlined in the Treasury’s ‘remit letter,’ holds the Bank accountable to the Government for these priorities. It ensures that the “materiality of nature” will now be a standard consideration in the Bank’s assessments and actions. To our understanding, this is the first time nature has been mentioned in the Bank of England’s remit.
Economic growth
The Chancellor’s Mansion House speech again stressed the importance of economic growth and the Government’s commitment to sustainability. The Government pledged to require mandatory, 1.5°C-aligned transition plans for large corporate and financial organisations.
However, the long-awaited consultation on mandatory transition plans was absent in the Mansion House speech. Transition plans are crucial for achieving the stability and competitiveness required to attract investment into the UK economy and support the global climate transition. Transition plans outline how a company will meet its climate goals, manage risks and opportunities, and support the economic transition.
Transition plans slated for first half of 2025
The Government have signalled the launch of a transition plan consultation in the first half of 2025. This will be delivered alongside a consultation on UK Sustainability Reporting Standards (SRS) disclosure requirements for ‘economically significant’ companies.
Four key elements UK companies should anticipate
In-house counsel of more prominent UK companies should anticipate the following:
- A complex policy and phased approach
- Mandatory disclosures based on the Transition Plan Task Force
- Interoperability with European Sustainability Reporting Standards (ESRS) framework and Corporate Sustainability Due Diligence Directive (CSDDD) requirements[6]https://www.e3g.org/news/to-compete-for-green-investment-the-uk-must-accelerate-its-transition-plan-agenda/
- Additional focus on nature-based financial risks
Taskforce on Nature-related Financial Disclosures (TNFD)
Companies may consider the market-led Taskforce on Nature-related Financial Disclosures (TNFD).[7]TPT legacy | International Transition Plan Network TNFD focuses on nature-related financial disclosures voluntarily. It is structured around four pillars, aligned with the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB);[8]IFRS – IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information[9]https://tnfd.global/standards-alignment/[10]https://tnfd.global/new-set-of-sector-guidance-published/there is a lot of overlap, and it is unlikely companies would be starting from the first principles.
Be prepared, take on reputational advantage and leadership
With the Chancellor’s remit to the Bank of England and similar expressions being made across Europe and the globe, corporates will need to start disclosing material nature-related impacts, including details on mitigating and managing these by integrating nature-related decision-making. Be prepared, take on reputational advantage and leadership.
How HKA can help
HKA provides advisory and dispute services to help companies and governments prepare for and respond to environmental disputes. They have access to leading environmental experts. Additional information on HKA’s services can be found here: (https://www.hka.com/industries/environment-climate-change/)
Contact Dr. Alexander Lee (alexlee@hka.com) directly.
About the Author
Alex Lee (MSc, PhD, FGS, CSci, CGeol, EuGeol, ASoBRA, SiLC), Principal
Dr Alex Lee is a Chartered Geologist and Scientist with over 25 years of experience and leads HKA’s environment and climate team with over 140 environmental experts. With various industry chair appointments, he is a critical thinker and industry leader with a history of influencing and writing UK guidance. He has been cross-examined in litigation and regularly provides expert opinion, analysis, and advice within dispute values of up to £700 million.
References
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