This page was reviewed and updated on 01/07/25.
The government is consulting on net-zero aligned transition plan requirements for “economically significant” businesses – including listed firms and financial institutions.
Climate transition plans were announced by the Conservative government as far back as 2021 and were also a 2024 Labour manifesto commitment. We’ve yet to get the finer details, so this consultation puts some meat on the bones in terms of what to expect in terms of scope, requirements and implementation.
It forms part of wider plans to modernise the UK’s framework for corporate reporting, and is linked to a consultation on the draft UK Sustainability Reporting Standards (UK SRS).
This transition plan consultation seeks views on how the government should move forward in a way that:
- supports an orderly transition in line with global climate goals
- enhances transparency for investors and promotes efficient capital allocation
- supports companies in capturing the opportunities from the global net zero transition
- supports the growth of the UK’s financial services industry by ensuring its sustainable finance framework is internationally competitive and maintains the UK’s status as a global financial hub.
What is a climate transition plan?
Transition planning is a process that companies undertake to define a strategic roadmap for their transition towards net zero.
The roadmap should outline:
- How an organisation intends to adapt and transform its operations, strategies, and business models to align with sustainability goals.
- Targets, and how the organisation will meet them.
- How the transition to net zero will interact with the company’s wider operations and strategic planning.
Will transition plans be made mandatory?
The government’s manifesto commitment was that UK-registered financial institutions and FTSE100 companies would fall into scope of transition plan requirements, and it wants to drive uptake of transition plans for all large businesses.
- The Financial Conduct Authority (FCA) has independent decision-making powers for listed companies and financial institutions. It already strongly encourages transition plan disclosure under TCFD reporting rules – and will soon be consulting on strengthening these requirements as part of its broader consultation on implementing the UK SRS for listed companies.
- For other “economically significant” companies, a key question the government is asking in the consultation is whether to:
- Mandate the development and disclosure of transition plans
- Strongly encourage it via a “disclose or explain” approach
- Small to medium-sized companies are unlikely to be in scope.
Global uptake of transition plans
Globally, companies are increasingly disclosing climate transition plans. A 2023 CDP report states that of the over 23,000 companies reporting to CDP, 25% of companies said they had a 1.5°C – aligned climate transition plan in place. The 1.5°C aligned target refers to the climate action required in order to limit global warming to 1.5°C above pre-industrial levels, by reducing greenhouse gas emissions, with the aim to achieve the global net zero target of 2050.
Added to that, an SBTi report found that the number of UK companies with validated science-based targets more than doubled in 2023.
However, the government highlights a gulf between the number of companies with public climate targets, and those with robust, transparent and actionable transition plans to achieve them.
CDP reports that of the almost 1,800 publicly listed organisations in the UK disclosing transition plans, 88% are disclosing against fewer than 15 of the 21 credibility indicators, mirroring similar trends of preparedness across EU nations.
Bridging the gap between ambition and delivery is a key driver for developing the UK’s transition planning policy.
Do climate transition plans deliver financial benefits?
Evidence increasingly suggests that transition planning can deliver significant benefits for companies, including supporting firm-level emission reductions, increasing competitiveness and reducing the cost of debt.
Embedding transition planning at a strategic level can help ensure that companies and financial institutions realise the benefits of transition plans, including the ability to manage the risks and seize the opportunities of the transition to net zero. According to a Lloyds Bank report on credible transition plans, 65% of executives believe that achieving all their targets will make the company “more” or “much more” competitive.
The wider picture – sustainability reporting in the UK
The consultation forms part of an overall plan to modernise and simplify the UK’s sustainability reporting framework for businesses. Two other consultations are running alongside the climate transition plan consultation. They seek feedback on:
- A draft of the UK Sustainability Reporting Standards (UK SRS)
- Developing an oversight regime for assurance of sustainability-related financial disclosures.
The FCA is also expected to consult in due course on strengthening its transition plan expectations for listed companies.
