Transition Finance Market Review calls for evidence

The TFMR has issued a call for evidence, open until 25 April 2024, seeking views to help its future work.

The TFMR was launched in January and will report in the summer. It proposes to take a broad view of what constitutes transition finance, and will look at how financing and financial services of any type can be enabled to support a credible net zero transition. It particularly wants to work with the markets to innovate products and services to help high emitting companies to decarbonise.

The call for evidence notes that “transition finance” has been used in limited circles only to date, but is now both used more and more widely, to encompass all finance that supports an organisation to credibly decarbonise its activities and overall contribute to a net-zero transition. It notes that greenwashing concerns have led to suggestions that transition finance should not cover certain high emitting sectors or organisations, but notes that by definition it surely must. So the review does not propose to exclude any economic sector in principle. It will take as its starting point that transition finance includes the financing of all activities compatible with an entity’s credible net zero transition. It does not agree that demarcating separately as “green finance” investment in “solution” technologies would be helpful.

The call also looks at the need for all transition finance to meet and demonstrate core environmental credibility and integrity expectations, and so it seeks views on definitions and standards for credibility and integrity, including the use of transition plans.

Next, it moves on to note the potential uses of taxonomies that set definitions for “green” and “sustainable” economic activities. It sees these as having the advantage of clarity where definitions are helpful, but shortcomings that can also lead to lack of clarity, and they are also limited in scope. So it seeks views on the role taxonomies can play.

Finally, it focuses on flexibility and interoperability of standards and frameworks, including internationally, before moving on to ask questions about barriers to the application of transition finance.

Questions include:

• whether there is sufficient clarity around the scope of transition finance;
• whether the approach that transition finance includes all sectors of the economy to the extent that it is part of a credible net zero transition is the correct approach;
• whether the primary focus of transition finance should be on a credible net zero transition in hard to abate and high emitting areas of the economy;
• whether it is right not to demarcate between “transition” and “green” finance economic activities;
• whether it is right to consider that transition finance includes all types of financial products and services that support a credible net zero transition;
• what measures and standards should be used to guide businesses’ approach to transition finance and is current guidance sufficiently credible;
• is there a role for taxonomies in the provision of transition finance;
• should regional or national pathways be incorporated in standards, frameworks or guidance;
• should different jurisdictions have different approaches;
• are there any likely unintended consequences of scaling up transition finance in the UK or internationally;
• what major barriers limit the ability to provide and access transition finance products;
• what good examples are there of effective investments, products, mechanisms and services for deploying transition finance to date; and
• how can the UK better leverage its existing financial and professional services expertise to support the growth of transition finance capacity, revenue and growth.