Brunel Pension Partnership and the People’s Pension have called on the UK government to mandate companies to disclose their transition plans before imposing the same requirements on the financial sector.
The filings were made to a Department for Energy Security and Net Zero (DESNZ) consultation on the introduction of mandatory climate transition plans, which concluded this week.
DESNZ said it was seeking views on how to deliver a policy commitment to mandate “UK-regulated financial institutions (including banks, asset managers, pension funds and insurers) and FTSE 100 companies to develop and implement credible transition plans that align with the 1.5C goal of the Paris Agreement”, as set out in the Labour government’s 2024 election manifesto.
Headline points from Brunel’s submission include proposals that the scope and sequencing of the requirements should begin with corporates, followed by asset managers and ending with asset owners. The requirements should also include proportionate relief for SMEs while managing the impacts that would have on supply chains, the pension pool said.
This was echoed by People’s Pension Partnership responsible investment head Leanne Clements, who argued that “a phased aligned approach” – in the order proposed by Brunel – would “help address data dependencies and avoid repeating past challenges in regulatory roll-outs”.
“To be truly beneficial, these disclosures must sit within a coherent, economy-wide regime, with careful consideration of sequencing to ensure effective implementation,” she said.
But the UK’s largest private pension provider, Universities Superannuation Scheme (USS), questioned whether financial sector bodies should face any disclosure requirements.
In its filing, the scheme said it saw continued value in understanding how real economy sectors are addressing the transition, but little value in financial subsectors – including asset owners, managers and banks – developing transition plans as they are unable to transition without broader real economy decarbonisation.
Mandating company disclosure may appear to be effective policy, but is unlikely to result in significant changes in company behaviour or system-level changes, USS added.
USS CEO Simon Pilcher said to Responsible Investor: “As we note in our consultation response, we believe that policy shifts will be the driver for achieving real-world change, rather than mandating reporting or company disclosures.”
The pension scheme has backed the use of the “gold standard” transition planning framework developed by the Transition Plan Taskforce (TPT) to underpin UK requirements, and has asked for transition plans to include a funded strategy with capex alignment, short- to long-term targets and Just Transition elements.
Non-mandatory route
However, Norway’s sovereign wealth fund said in its submission that the TPT framework was “overly granular to be embedded into a mandatory disclosure framework for a broad scope of entities at this stage”.
Norges Bank Investment Management (NBIM) said a specific obligation to develop a standalone transition plan “might not be necessary”, as it is expected that companies will begin disclosing transition plan-related information as part of their annual reporting under the International Sustainability Standards Board’s IFRS S2 climate reporting requirements.
Despite this, NBIM spoke in favour of mandatory requirements to disclose “the most decision-useful elements of transition plans, which include decarbonisation levers and financial implications”.
Federated Hermes also noted separately in comments shared with RI that the TPT framework “may not be an appropriate minimum requirement for all companies in all sectors” due to its stringent requirements.
The US manager said the UK “may consider how ‘comply or explain’ rules could be integrated to enable an ambitious transition plan requirement that nonetheless remains flexible and avoids unnecessary reporting burden”.
The UK’s largest workplace pension provider, Nest, has also proposed that the government consider a size-based threshold, which reserves mandatory disclosure for larger companies and introduces an initial “comply-or-explain” implementation for SMEs.
In addition, transition plans should not be required to align with a 1.5C scenario, said Nest, in recognition of the fact that some companies are operating in challenging conditions or may be at different stages of transition planning.
Katharina Lindmeier, head of sustainability strategy at Nest, said pension funds “will require more detailed, forward-looking data to make better-informed investment decisions for our members”.
Australian pension fund-owned IFM Investors has backed mandatory requirements on the disclosure of transition plans, but not their implementation.
“We do not believe implementation of transition plans should be mandated, with shareholder and stakeholder pressure and customer expectations all contributing to companies following through on the plans, providing a market-based accountability mechanism,” said Maria Nazarova-Doyle, global head of sustainable investment at IFM Investors.
She added that the manager’s filing had proposed that transition plans be required to focus initially on high-emitting sectors.
Both IFM Investors and Brunel called for safe harbour provisions to mitigate liability risks from forward-looking estimates and statements, and to raise ambition.
Separately, Lucas Penfold, head of sustainability reporting at Impax Asset Management, said the firm’s submission suggested that the government consider “a more principles-based approach to mandatory requirements will give companies the room to disclose meaningfully by focusing on the most material areas, without feeling boxed in”.
Anything less than mandatory implementation “risks leaving investors in the dark over the resilience of their portfolio to climate change”, Penfold said.
Impax has also proposed that companies should be asked to show how their transition plans can be resilient under various scenarios, “rather than aligning to one specific aspirational goal such as 1.5C”.
Impax and IFM Investors supported a three-year cycle for transition plans to be reviewed and refreshed.