The FCA has welcomed the report and recommendations from the Transition Finance Market Review. The review looks at the opportunities that transition finance presents for the UK and the hugely important role of private capital in financing the transition. It notes the complexities of decarbonisation and the need for cross-industry and global actions. It noted some unintended consequences, such as that some financial institutions have been discouraged from investing in high-emitting assets or activities even when there is a chance to support long-term decarbonisation, and there are instances of finance retreating from emerging markets while companies try to offload high-emitting assets to buyers less committed to a net zero future.
The review had identified five key barriers to accessing and deploying transition finance in the UK and has worked up recommendations to address these. The recommendations cover:
- defining the scope of transition finance, with classification schemes and guidance;
- more granular national and sectoral pathways and planning;
- scaling finance for transition activities, including establishing a transition finance lab, and looking at insurance solutions and demand incentivisation and aggregation;
- scaling finance for transitioning entities, including through working groups;
- scaling transition finance with credibility and integrity, calling for proactive engagement from regulators and international alignment and collaboration;
- scaling transition finance in emerging markets and developing economies through grant funding and international diplomacy and advocacy; and
- delivering on the ambitions of the review through a Transition Finance Council.
Actions the FCA will take include:
- considering how best to embed the Review findings in its policymaking and supervisory functions;
- working with the Government on a new regime for ESG ratings providers; and
- monitoring market practices and encouraging best practice standards.
The FCA says it acknowledges concerns that some businesses are being accused of greenwashing when making claims about future decarbonisation and explains that its guidance for the anti-greenwashing rule published in April explains its stance on this.