A new report examining how the UK financial sector can best support the UK’s future green ambitions has been launched by the Minister for Industry Sarah Jones.
The report, named the Transition Finance Market Review, details the results of a comprehensive systemic review chaired by Vanessa Havard-Williams. Additionally, the report makes several systemic recommendations for the government to support the growth of the green finance sector and ensure its credibility.
The review notes several barriers to scaling up transition finance, including a lack of regulatory and policy certainty on green finance, challenges with assessing if potential finance opportunities will have a credible impact on decarbonisation, limited provision for transition strategies in the UK’s sustainable finance regulatory regimes, and the risk of greenwashing.
In order to provide clarity on what does and does not constitute transition finance, the report recommends that a set of guidelines for credible transition finance, laying out credibility and integrity parameters for transition finance, be formally introduced. Additionally, the report suggests that by the end of this year, the government should establish a new set of regulatory bodies for transition finance, each with different responsibilities and priorities.
In order to scale up the UK’s transition finance sector, the review recommends that a Transition Finance Lab, based in the Green Finance Institute (GFI), be established. This body would collaborate with finance institutions, policymakers and industry in order to “design, develop and test finance structures to accelerate sector-specific transition pathways”. Specifically, this body – which would be led by the private sector and funded by government – would “address specific transition finance sectoral or technology challenges that cannot be addressed through the standard investment process.”
It is also recommended that the government work with the industry to consider if its net zero policy framework is appropriately structured, as well as encourage active engagement from regulatory bodies. On this, the Financial Conduct Authority (FCA) published a response on its website, in which it says it “welcomes” the review, adding that “Transition finance remains a priority for us and we acknowledge the TFMR’s call for more communication on how we view its role within our wider work and regulation. Our objective is to support the market to scale with integrity, with the right standards and guardrails to help build trust”. The FCA also stated that it would work with the government on a new regulatory regime for ESG rating providers, echoing an earlier commitment made by Chancellor of the Exchequer Rachel Reeves.
In a speech at London’s Guildhall launching the Transition Finance Market Review, Minister for Industry Sarah Jones said: “Mobilising public and private finance will be critical to achieving our clean energy mission and international climate goals. The government is working quickly to remove the barriers and deploy legislative actions to accelerate the work.”
Jones also noted that the government aims to make the UK “the green finance capital of the world”, adding that “a strong sustainable finance policy framework is critical to driving investment into the sectors that are crucial to meet our carbon budgets.”
