Private small or medium-sized companies within the UK are currently not required by law to produce any environmental reports or disclosures (but note, large private companies who meet certain size-related criteria are required). However, there is a growing pressure, both societal and by investors, for companies to pledge a net zero future or at the very least consider and improve their sustainability credentials.
With the publication of the consultation on the draft Disclosure Framework and Implementation Guidance by the Transition Plan Taskforce aimed at private companies to assist their preparation and disclosure of climate transition plans, reasons for businesses to not get on board are fading (some may say like coral).
A climate transition plan sets out how an organisation will adapt in line with the advances towards a low carbon economy.
The growing arsenal of guidance and publications aimed to assist companies and their boards (we touch on some in our article, here) can be helpful tools for companies to demystify evolving requirements and expectations.
This is particularly helpful to SMEs who may have limited capacity to allocate resources to come up with a transition plan. Therefore, the draft Disclosure Framework may make sustainability goals appear more attainable and remove the potential barriers to smaller companies to be able to make a concerted effort in moving towards a more environmentally friendly future. Even large companies can find creating a transition plan and other ESG reporting challenging, so the draft framework is likely to be beneficial for private companies of all sizes.
Providing a framework introduces some consistency and a level of quality into a company’s plans. Investors had noted previously that it was difficult to see and compare what was actually happening company to company and therefore it was difficult to make informed decisions. Investors have their own sustainability targets, and some even have their own net zero pledges; therefore, they are more likely to make investments in companies which are not only taking steps towards a more sustainable future, but in companies who are providing meaningful, decipherable information demonstrating these steps.
With the introduction of more guidance, will private SMEs feel more empowered to prepare environmental disclosures, such as a transition plan, or even go so far as to pledge a net zero future? Or will investor pressure and seeking funding be a more instrumental influence? Either way, any encouragement and assistance for companies to improve their sustainability initiatives is beneficial from the planet’s perspective, especially during renewed focus at COP27.