TPT’s final Disclosure Framework sets clear guidance for UK financial institutions

After a first Consultation in November 2022, the final Disclosure Framework was published in October 2023, setting clear guidance and recommendations split into five categories:

• Foundations with disclosure of the financial institution’s strategic ambition to support the transition to a climate-resilient economy, focusing on its plan’s key milestones to achieve it
• Implementation strategy and how to achieve its strategic ambition
• Engagement strategy with key stakeholders
• Metrics and targets used to support the transition plan
• Governance to embed the transition plan into the company’s governance structures and organisational arrangements

These themes support the TPT Framework’s guiding principles:

• Ambition to contribute to and prepare for a rapid and orderly economy-wide net zero transition
• Action to focus on concrete actions which emphasise the short-term and strive for resilience
• Accountability to focus on concrete actions which emphasise the short-term and strive for resilience

Alignment with international governing bodies

The TPT Framework is consistent with and provides guidance to complete some of the International Sustainability Standards Board’s (ISSB) Climate-Related Disclosures standard (IFRS S2) requirements. The TPT Framework also draws on the Glasgow Financial Alliance for Net Zero’s (GFANZ) framework and guidance for credible, comprehensive, and comparable net zero transition planning.

As such, the TPT Framework gives a very comprehensive set of guidelines that UK financial institutions should start considering, with the rollout of mandatory Task Force on Climate-related Financial Disclosures- (TCFD) aligned climate disclosure requirements by January 2025 for all listed companies.

A reference for the UK regulatory body

In its Letter to Chief Executives in September 2023, the Financial Conduct Authority (FCA) encouraged wholesale banks to engage with the TPT Framework to discuss disclosure and implementation guidance. The FCA also committed to draw on the TPT Framework to enhance its disclosure requirements for regulated asset managers and owners and ensure the alignment of their climate-related disclosure with TCFD’s guidance. Finally, the FCA will consult on proposals for (i) mandatory sustainability disclosure requirements in line with the TPT Framework and (ii) the implementation of UK-endorsed ISSB’s Standards for listed financial institutions.

In July 2023, the Bank of England published its Climate-Related Financial Disclosure in which it reminded that the Prudential Risk Authority (PRA) already expects all regulated banks and insurers to report their climate-related financial risks as part of their public climate disclosures, and where material in their Pillar 3 regulatory disclosures.

What it means for financial institutions

Although disclosure alignment implications may vary depending on the companies’ regulated and listed status, most UK financial institutions are expected to start incorporating some of the TPT’s, ISSB’s and TCFD’s disclosure requirements and standards into their climate transition plans.

This table gives a concise and non-exhaustive summary of these implications:

Key takeaways:

• On 9^th October 2023, the UK’s TPT published its final Disclosure Framework and supporting guidance. This framework will help financial institutions (banks, insurance companies, asset managers and asset owners) [1] build and disclose their climate transition plans.

• The TPT Framework is consistent with and draws on other international governing bodies’ disclosure and requirement standards (see Technical Mapping).

• The PRA already expects banks and insurers to report their climate-related financial risks as part of their public climate disclosures, and where material in their Pillar 3 regulatory disclosures.

• Most financial institutions are expected to start incorporating governing bodies’ disclosure requirements and standards into their climate transition plans.

[1] Details for banks, asset managers, and asset owners to be released in November 2023.