Failure to require all large private companies to publish their net zero transition plans puts the UK’s climate goals at risk, Rishi Sunak has been warned.
Under current rules, only firms listed on the FTSE 100 index – the biggest on the London Stock Exchange – are required to disclose how they will decarbonise their businesses by 2050.
But major private firms have told The Independent that failure to extend the scheme not only puts the UK’s climate goals in jeopardy but also presents a risk to businesses that could face increased costs and reduced access to capital if they don’t have credible plans.
Maria Nazarova-Doyle, head of responsible investments and stewardship at Scottish Widows, said: “Transition to net zero is a whole economy transition. But the lack of requirement on large private companies to produce net zero transition plans omits a significant part of the business community.
“Setting out a clear timeline for extending mandatory requirements on publication of net zero transition plans to all large companies, including private ones, in line with the existing scope of TCFD [Task Force on Climate-related Financial Disclosures] requirements is the best way to boost this critical next step on the journey to net zero and ensure consistency across the economy.”
In October 2021, ahead of the Cop26 climate summit in Glasgow, the government published its Net Zero Strategy which set out how the UK planned to deliver on its commitment to slash emissions by 2050.
Mr Sunak, who was chancellor at the time, vowed in a speech at the conference that the UK would become the world’s first net zero financial centre.
In a bid to hold private companies to account on their net zero plans, the Financial Conduct Authority, backed by the Treasury, later introduced “rules” for listed companies to disclose transition plans, initially on a comply or explain basis.
The first disclosures are expected later this year but campaigners and activists are concerned that there is currently no mechanism in place to ensure companies comply.
James Wilde, chief sustainability officer at Phoenix Group, an insurance company whose subsidiaries include Standard Life, said making transition plans mandatory would send a “powerful message that all businesses need to play their part in the net zero transition”.
“As the UK’s largest long-term savings and retirement business with £0.3 trillion assets under administration, Phoenix Group is committed to being net zero by 2050 and we will publish our inaugural net zero transition plan later this year,” Mr Wilde said.
“Currently, around 99 per cent of our carbon footprint sits within our investment portfolio, which means we are dependent on the businesses we invest in to have a credible decarbonisation strategy.
“Making net zero transition plans mandatory for all large businesses, would send a powerful message that all businesses need to play their part in the net zero transition and would help us make better informed capital allocation, stewardship and risk management decisions to decarbonise our investment portfolio in a way that maximises financial benefit to our 13 million customers.”
Chiara Essig, director of upstream sustainability services at real estate company JLL, said: “Businesses that are not adequately addressing their transition risk could face increased costs and reduced access to capital. Whether you’re private or public, large or small, this doesn’t change your exposure to such risks.”
Ms Essig added: “If anything, smaller companies might be even more vulnerable, as they are less likely to be diversified and equipped to manage or adapt to transition risk, so all the more reason to ensure that they are effectively prepared.”
Jonathan Geldart, director general at the Institute of Directors, said: “High-quality transition plans are essential if the UK is to succeed in moving to a low-carbon economy, as they enhance transparency and give potential investors vital information on climate-risk management.
“The requirement for listed companies to publish transition plans has been a welcome first step, but we would encourage government to bring large, non-listed companies into scope in order to accelerate business planning for net zero.”
In July 2019 the government launched its first Green Finance Strategy policy which had three main objectives: to support the financial services sector in aligning with the UK’s net zero commitments; to “finance green” by mobilising private investment to support clean and resilient growth; and to “support financial services to capture the opportunity presented by the transition to a net zero and nature-positive economy, cementing UK leadership in green finance and ensuring that businesses can benefit”.
A call for evidence was issued in May last year to get views from stakeholders to support the Green Finance Strategy. An update on the strategy is expected in the coming days.
Nitika Agarwal, head of finance policy at WWF, the non-governmental organisation, said it was for the government to include in the strategy a mechanism that will mandate companies to publish their transition plans and called for the requirement to be extended to all large companies.
”Credible transition plans are critical to show investors how companies are actively reducing their climate emissions and informing their financing decisions, so we can tackle the climate and nature crises,” she said.
“We already know we can’t rely on voluntary approaches, so the government should outline exactly how it will keep its promise to make it mandatory for companies to publish transition plans in its forthcoming Green Finance Strategy.
“All large companies, not just listed companies, must publish transition plans to create a level playing field and encourage an economy-wide transition. This is essential if the government is to achieve its ambition to make the UK the world’s first net zero aligned financial centre with all of the rewards that will bring us.”
A Department for Energy Security and Net Zero spokesperson said: “UK businesses have led the way in joining the UN’s Race to Zero initiative, with two-thirds of the FTSE 100 signed up.
“As part of the UK’s ambition to go even further, the Financial Conduct Authority has now introduced and updated rules for asset managers, owners and listed companies with requirements to publish transition plans. The government has also set up a task force to develop a gold standard for transition plans.”
