Net zero-aligned UK transition plan duties consulted on

On Wednesday, the government opened a series of consultations relating to sustainable finance, including on the development of new sustainability reporting standards (SRSs) in the UK, a separate regime to ensure the information reported in accordance with the new standards is verified by assurance providers, as well as on how to meet its manifesto commitment of imposing transition plan requirements on UK-registered financial institutions and listed companies.

In its transition plan consultation, the government said it is “considering whether to redefine the scope of entities under any future transition plan requirement”, adding that “the focus will be on economically significant entities, including pension funds, where there is likely a significant investor and public interest”. SMEs, it said, are not envisaged to be in-scope of any new requirements, though it acknowledged that smaller companies could indirectly be impacted by new transition plan requirements where they are involved in a larger in-scope company’s supply chain.

The government has not yet decided what form the transition plan requirements should take and instead is consulting on a variety of possible options.

Under one option, in-scope entities would face no legal obligation to develop and disclose a transition plan, but would instead be required to explain why they have not published such a plan or transition plan-related information in accordance with any new UK SRSs.

A further option would impose a legal obligation to develop and disclose a transition plan as part of their annual reporting and, potentially, as a separate transition plan document. However, the obligations would not extend to dictating specific goals that entities would need to ensure those plans align with, and nor would they be subject to any legal duty to implement those plans.

However, the government is considering mandating transition plan implementation as well as the alignment of such plans with ‘net zero’. It has acknowledged that this option could add costs for businesses as well as bring new legal and compliance risks. It has pledged to “carefully assess the impacts of any new requirements” against its own growth missions and the potential impact on the UK’s global competitiveness.

The government acknowledged the emerging best practice within industry in relation to climate-related transition plans and welcomed the efforts of bodies such as the UK’s Transition Plan Taskforce in developing voluntary standards that businesses can adopt for developing, disclosing and implementing their own transition plans. However, it said “there remains a gulf between the number of companies with a public climate or environmental targets, and those with robust, transparent and actionable transition plans to achieve those targets”. It said it wants to ensure new transition plan requirements “generate robust and decision-useful information, for investors and other stakeholders” but are not “overly burdensome for companies and financial institutions to meet”.

Many businesses already develop and disclose their own climate-related transition plans, recognising the commercial advantages they can derive from doing so and the value those plans offer to investors. There is also increasing recognition that good transition plans reduce legal risk and protect corporates and boards from criticism and action.

On Wednesday, Bruno Gardner, head of climate change and nature at financial services firm Phoenix Group backed the government’s plans to mandate transition plans. In a post on LinkedIn, Gardner said the company believes they are “good for growth and good for business, and can offer huge commercial opportunities”. He said businesses that do not develop transition plans risk falling behind competitors.

Gardner said: “At Phoenix Group, we’ve seen first hand how valuable transition plans are for business. As a large investor, they provide us with a wealth of information that helps us to assess climate-related risks and opportunities in the companies we invest in. This, in turn, helps us to engage with these businesses and support long-term value creation. It’s also why we’ve published our own transition plan. The process of creating it was just as valuable as the final product. It sparked strategic conversations across the company, pushed us to think long-term, and helped align our teams around a shared vision for net zero. The discipline and clarity that come from developing a plan may be one of the most underrated benefits.”

In its separate consultation regarding the development of new UK SRSs, the government confirmed plans to base the UK standards on two international standards that were finalised by the International Sustainability Standards Board (ISSB) in 2023. It said, however, that it intends to apply some UK-specific amendments. Among other things, it could mean in-scope entities are given an extra year after the UK regime takes effect, beyond the one year provided for under the ISSB standards, to defer disclosure of sustainability-related risks and opportunities beyond those relating to climate. It is also seeking views on whether all economically-significant entities should be subject to the proposed reporting requirements and on how those requirements should sit with other overlapping, existing requirements.

The third consultation invites views on the establishment of a voluntary registration scheme for assurance providers in relation to the proposed new standards. The government is seeking views on the proposal that both audit and non-audit professionals could become registered providers and subject to regulation by the Audit, Reporting and Governance Authority (AGRA), which would be given powers to take action against providers for poor performance as well as in setting eligibility requirements.

Hayden Morgan of Pinsent Masons, who advises businesses on how to achieve sustainability goals, said: “The transition plan consultation, taken together with the ISSB-aligned proposals, reframe both climate transition plans and wider sustainability disclosures as a suite of strategic tools for improving operational resilience and mitigating risk.”

“The proposals, if implemented, can enhance internal control governance processes and reduce litigation exposure. Operationally, they enable structured decarbonisation and integrate core business processes with evolving global disclosure standards. Credible transition plans, underpinned by best practice science, taken together with the ISSB standards, offer a robust defensible framework for regulatory engagement, stakeholder transparency, and ongoing access to capital,” he said.

The government’s consultations are open until 17 September 2025.