On 17 October 2024, a report setting out the findings of the Transition Finance Market Review (TFMR) was published. The report sets out recommendations on how to scale a high-integrity transition finance market that can support both UK and global net zero ambitions.

The TFMR was tasked with examining how the UK, as a global financial hub, can lead in developing norms and practices for transition finance that facilitate an economy-wide shift towards sustainability.

The TFMR’s findings

The findings of the TFMR, set out in the report, outline a roadmap to establish the UK as a global transition finance hub, detailing the necessary steps for Government, regulators and the market. The terms of reference of the TFMR focused on scaling the UK as a global transition finance hub, so recommendations are primarily made at the national UK level, where more detailed proposals are sought. In some cases, where findings are seen to be relevant across jurisdictions, recommendations are also made at the international level.

The report organises the findings around three core pillars that it says are essential for scaling a robust transition finance market:

  • Establishing clarity and credibility, including through confirming the scope and objectives of transition finance and creating a robust transition finance market from the top down.
  • Scaling finance for transition activities, by making transition finance solutions commercially viable at deal level.
  • Scaling finance for transition entities by moving towards transition strategy assessment being at the core of financing decisions, including general-purpose and passive investment.

For the market to be successful, the TFMR identified improved communication, capacity building, and governance as necessary crosscutting factors.

The FCA’s response

The FCA has welcomed the TFMR report and recommendations, noting that transition finance remains a priority for it and acknowledging the TFMR’s call for communication on how the FCA views its role within its wider work and regulation.

The FCA notes that its objective is to support the market to scale with integrity, with the right standards and guardrails to help build trust, and that to ensure it can achieve this, it will:

  • Consider the transition to net zero within its policymaking and supervisory functions, including how best to embed the TFMR’s findings.
  • Work with the Government on a new regime for ESG ratings providers to further support integrity in transition-related ratings.
  • Build on the productive engagement the FCA has had with the TFMR, industry participants and international bodies to progress transition finance, including through the Climate Financial Risk Forum.
  • Monitor market practices and raise standards, for example by consulting on strengthening its disclosure expectations, pending the Government’s endorsement of the International Sustainability Standards Board standards.
  • Support firms through more guidance and best practice, such as its review of the sustainability-linked loans market.

In addition, the FCA recognises concerns that have been raised to the TFMR around being accused of greenwashing when making claims about future decarbonisation. It flags that its guidance on the anti-greenwashing rule gives more information on its approach, including on transition-related claims.

Firms are encouraged to read the TFMR’s recommendations and to engage with the FCA as it undertakes further work on this issue.