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- We are at a critical moment; Review says companies and governments will require credible transition finance to deliver on decarbonisation commitments and meet Paris Agreement goals.
- The UK is uniquely positioned to become a leading hub for the transition finance market and use its leadership position for financial and professional services to accelerate the global transition.
- The UK’s Transition Finance Market Review (TFMR) provides a framework to scale the market for transition finance in the UK and globally. But the opportunity is timebound and the government, companies and market must act together now to establish a coherent strategy.
The Transition Finance Market Review (TFMR), a UK government commissioned independent review into how to scale a high-integrity transition finance market, has today published its final recommendations for government and the market.
This landmark Review, co-sponsored by HMT and DESNZ and hosted by the City of London Corporation, provides a growth framework for transition finance – financial products and services that facilitate an economy-wide transition to net zero. Central to the findings of the Review are recommendations on how to unlock required levels of finance by creating the right policies, pathways and signals for investment through collaboration between government, investors, business and civil society.
The context
IPCC scenarios forecast that the global economy will overshoot the Paris Target without strong, near-term mitigation. This requires a significant increase in spending on the global transition. BloombergNEF estimates that, to match their ‘economic transition’ scenario, annual investment must rise to $6.7 trillion per year.
To enable the transition to net zero, companies will need additional finance. With half of the world’s largest businesses having made public net zero commitments, there is growing demand for an effective policy, regulatory and financial market ecosystem to support companies in implementing their transition strategy and accessing the required capital.
The opportunity
For the UK specifically, the Review states that transition finance is a necessary condition to deliver on the UK government’s ‘growth’ and ‘clean power’ missions and deliver forthcoming carbon budgets. Most emissions reductions to date have been driven by decarbonisation of power supply. Other sectors, such as industrial sectors, aviation, freight transport, building and agriculture will require access to significant amounts of transition finance to decarbonise.
The UK’s Climate Change Committee estimated the UK will need a total of £2.7 trillion of investment between 2021 and 2035 to meet the UK’s net zero commitments, amounting to a five-fold growth in investments to approximately £50 billion per year in 2030.
The Review urges the UK to capitalise on its unique position to play a leading role in the development of a global transition finance market, which will in turn create a significant opportunity for UK businesses. McKinsey & Company estimate that enabling the net-zero transition could bring in £1 trillion to UK businesses by 2030.
The UK is already one of the world’s leading centres for sustainable finance and transition planning. Its financial, professional services and insurance sectors, alongside renowned academic and civil society ecosystems create the right landscape for the growth of a high-integrity and best practice market.
The action
The Review suggests swift action to adopt a leading position that leverages the UK’s track record and experience. Failure to do so risks missing a major opportunity to drive prosperity and leaves the UK relying on others to achieve our decarbonisation goals.
Findings also suggest how to finance the transition in emerging markets and the importance of collaboration across international markets to develop a cohesive and unfragmented approach to delivering transition finance. The Review highlights that credibility and international interoperability are baseline requirements to scale global transition finance.
The Review calls on private and public organisations to work together to drive the transition, unlock finance and achieve the goals of the Paris Agreement. The opportunities associated with getting this right are clear. The Review’s recommendations provide a blueprint to realise that opportunity.
Key recommendations of the Review include:
1. National sectoral transition planning and policy certainty: Scaling transition finance will require a greater level of granularity in sectoral transition pathways, greater collaboration with industry, and a greater level of coordination across government. The Review recommends a commitment to resourcing the Net Zero Council to deliver this granularity.
2. Catalytic capital and activity-level de-risking: Reaching commercial maturity for emerging transition activities will require effective policy, catalytic public capital, and public-private innovation. The Review recommends establishing a Transition Finance Lab to develop and test targeted financial solutions to tackle these challenges.
3. A Move towards entity-level transition finance: To move towards general-purpose transition finance predicated on a credible transition plan, the Review recommends mandatory Transition Plan Taskforce-aligned transition plan development and disclosure, and an evolution in the supporting data, assessment, verification, and assurance of transition plans.
4. Embedding credibility and integrity: The Review adopts a Transition Finance Classification System and proposes Guidelines for Credible Transition Finance. A principles-based approach to transition finance aids coalescence around core elements whilst enabling sufficient flexibility in other markets including emerging markets and for SMEs.
5. Delivering a roadmap for transition finance: Establish a Transition Finance Council to ensure delivery of the Review’s recommendations, as well as supporting capacity building, collaboration, and coordination.
The full set of recommendations can be seen in the final report here: https://www.theglobalcity.uk/insights/scaling-transition-finance
Vanessa Havard-Williams, Chair of the Transition Finance Market Review, said:
“Transition finance is key to unlocking decarbonisation across the economy including in sectors where immediate transformation is complex. It offers opportunities for countries and organisations, but there is a material risk to not acting now. This Review comes at a critical moment, as industries and investors alike recognise the need for transparent and credible financing solutions that drive meaningful climate action.”
“The industrial revolution needed to deliver the energy transition is a one in two-hundred-year event, and it presents significant opportunities, socially, environmentally and economically. The UK has the infrastructure, market and ambition to succeed, leveraging its capability as a commercial, financial and civil society leader. It must act now to seize these opportunities and to unlock change not just for the UK, but also other nations working to meet the goals of the Paris Agreement.”
The Review was commissioned in 2023 by HM Treasury and the Department for Energy Security and Net Zero and launched in January 2024. It engaged extensively and sourced input from a wide range of stakeholders and sources to gather evidence in support of its final recommendations. This included:
- A public Call for Evidence, which ran from 14 March 2024 to 9 May 2024 and received 57 responses.
- Over 40 dedicated stakeholder workshops held, including with banks, insurers, investors, companies, non-governmental organisations, regulators, and consultants.
- Over 200 bilateral engagements with a wide range of individuals and organisations, primarily in the UK but also internationally.
- Engagement with the Review’s Expert Group, which met five times over the course of the Review.
- Regular engagement with officials from commissioning departments, the Financial Conduct Authority and the Bank of England.
- The Review directs its recommendations to policymakers, financial institutions and professional service firms, companies and civil society.
Chris Hayward, Policy Chairman of the City of London Corporation, said:
“The City of London has long been a champion of the UK’s role in the net zero transition. As the host and co-lead of the Review’s secretariat, the City Corporation welcomes the findings of this work and the opportunities it outlines. The Review’s findings provide a roadmap to unlocking transition finance and addressing key barriers to growth. We are ready to work with the Government to implement the key recommendations of the Review and seize the opportunities presented in these findings.”
Councillor Irem Yerdelen, Leader Member for Sustainable Finance, City of London Corporation, said:
“The UK will not meet its net zero ambitions without transition finance. The findings of the Review reinforce the UK’s unique position to unlock investment opportunities and accelerate the global transition. It’s imperative that Government and industry work together with urgency to establish a robust and clear implementation strategy.”
Notes to editors
About the Transition Finance Market Review:
The Transition Finance Market Review is an independent Review led by Vanessa Havard-Williams, supported by a panel of advisors and a secretariat. The Review was commissioned by Treasury Lords Minister Baroness Vere and Department for Energy Security and Net Zero Minister Lord Callanan, following the 2023 Green Finance Strategy. TFMR’s focus is on how the UK can leverage its existing strengths to become the best place in the world to raise credibly transition capital, invest and obtain financial and professional services to support a net zero future.
About the City of London Corporation:
The City of London Corporation is the governing body of the Square Mile dedicated to a vibrant and thriving City, supporting a diverse and sustainable London within a globally-successful UK. The City of London Corporation hosts the TFMR secretariat.
For more information contact:
The TFMR Secretariat: [email protected]
Notes to editors
The City of London Corporation is the governing body of the Square Mile dedicated to a vibrant and thriving City, supporting a diverse and sustainable London within a globally-successful UK. www.cityoflondon.gov.uk