Twin peaks: Transition finance and the agenda for growth

“Transition finance” has been in successive UK Government’s sights as an opportunity for the UK. An ambition to make the UK a global leader in transition finance was part of the Sunak Government’s 2023 Green Finance Strategy. The Transition Finance Market Review (TFMR) was subsequently mandated in early 2024 to conduct an independent review of the barriers to scaling transition finance. 

This ambition has gathered momentum since the election. Labour’s vision for a “modern industrial strategy” earmarks the growth potential of the UK’s financial services sector and notes its role in the race to net zero. The development of a robust transition finance market, with London at its heart, is an opportunity to scale the twin peaks of economic growth and effective decarbonisation. 

Earlier this month, the TFMR reported on its findings. Its Report (the Report) articulates an ambitious range of strategies, policies, pathways and investment signals, all aimed at bringing investors and companies together such that volumes of “transition” finance increase. The Report is thoughtful and comprehensive, but not an easy read. This reflects the complexity of the task, which now sits with Government and other stakeholders to digest and take forward. 

The TFMR’s numerous recommendations will impact corporate funding options, in that the policy and financial sector response will shape capital flows. The Report looks at unlocking transition capital at “activity level” (specific purpose financing). It also looks at how the financial sector can support decarbonisation in the context of “entity level” general purpose financing, including for higher emitters.

Our latest SM Treasury Insights briefing considers the implications of the Government’s ambitions for the “transition finance market” for finance and treasury teams, including the key elements of the Report’s recommendations to consider monitoring or engaging with in more detail.  While the briefing is focussed on finance, it will also be of interest to sustainability teams and others involved in corporate transition planning, which going forward, will need to proceed with a specific eye on how “transition” is to be financed.