Transition Finance: Frameworks, Progress and Outlook

The past twelve months have marked significant progress for transition finance. We have seen the publication of the UK Transition Finance Council's exposure draft Transition Finance Guidelines (the “TFC Guidelines”), the loan trade associations’ Guide to Transition Loans (the “LMA Guidance”), and ICMA's Climate Transition Bond Guidelines (the “ICMA Guidelines”), which have recently been supplemented by a guidance handbook. This has been accompanied by UK Government and FCA consultations on sustainability disclosure and transition planning.

We previously explored the relationship between transition finance and the UK's agenda for growth[1]. In this post, we take stock of where the market stands and look ahead to key developments to watch.

Where we are now

The transition finance market is at an inflection point. Investment in the energy transition reached a record $2.3 trillion in 2025, yet only a small proportion of this capital is flowing to the hard-to-abate sectors that most need it. This disconnect can be attributed to a lack of bankable projects, consistent frameworks and clear demand signals, as discussed further below. 

Framework progress

From a market infrastructure perspective, the past year has seen significant advancement:

1. The LMA Guidance provides the first dedicated voluntary framework for use-of-proceeds transition loans, filling a gap between established green loan products and the investments needed to decarbonise high-emitting sectors[2].
2. Similarly, the ICMA Guidelines introduce a standalone climate transition bond label, enabling issuers to raise use-of-proceeds finance for projects outside the scope of traditional green bonds. The recent ICMA guidance handbook provides a practical Q&A on navigating the ICMA Guidelines, including whether an issuer at the start of its transition journey can issue climate transition-labelled bonds.
3. The exposure draft TFC Guidelines address entity-level assessment, providing capital providers with a methodology to evaluate the credibility of a company's transition ambition, planning and implementation for entity-level financing. 

All three guidelines share common requirements: a credible entity-level transition strategy, alignment with science-based decarbonisation pathways, robust governance and transparent reporting. The LMA Guidance and ICMA Guidelines both require project-level finance to be positioned within a credible entity-level strategy, linking directly with the TFC Guidelines' entity-level focus. 

Barriers to transition finance

Despite this progress, obstacles to scaling transition finance remain. Market participants have highlighted several challenges:

1. Capital deployment: Investors and corporates report that transition finance capital is now readily available; the challenge is channelling it appropriately, given a shortage of bankable projects.
2. Regulatory uncertainty: Stakeholders face difficulties navigating a complex and evolving policy landscape, particularly as policies and market infrastructure vary across jurisdictions. Political uncertainty can also reduce investor appetite.
3. Internal constraints: Corporates may lack the internal expertise or clear incentives to develop transition frameworks and navigate regulatory uncertainty. This lack of transparency and data can also hinder transition investment.
4. Greenwashing and reputational risk: Some capital providers continue to be hesitant about financing high-emitting and hard-to-abate sectors for fear of reputational damage and greenwashing accusations. 

The FCA's recent transition finance pilot findings reinforce this picture, noting that capital is not always well-matched to opportunity despite strong investor appetite, with misalignments in ticket size, tenor, and risk profile limiting efficient deployment, particularly where projects are first-of-a-kind.

Credibility remains central to scaling transition finance. The emerging frameworks are beginning to address this by providing common criteria for assessing what constitutes credible transition finance at both entity and project level, offering guardrails that support market integrity and reduce greenwashing risk. 

That said, interoperability remains a work in progress. Although guidance is broadly aligned, differences in scope, terminology and application may create friction for market participants seeking to navigate multiple regimes. The market is making progress, but gaps remain, setting the stage for the next phase of market development.

Where we are going

Several regulatory and policy developments are set to shape the UK transition finance market in the near term.

Transition planning

Entity-level credibility has emerged as a key lever to scaling transition finance. Across all frameworks, the consistent message is that credible transition finance starts with a credible corporate transition strategy. Attention is now turning to how transition planning will be embedded in regulation.

The UK Government's consultation on mandatory transition planning requirements is expected to conclude imminently[3]. If transition plans become mandatory for certain companies, the expectation for a credible transition strategy underpinning the TFC Guidelines, LMA Guidance and ICMA Guidelines would shift to a regulatory requirement.

The FCA's January 2026 Consultation Paper CP26/5 acknowledges that while mandating transition plans is a matter for Government, the FCA proposes that in-scope listed companies should disclose whether they have published a climate-related transition plan and, if not, explain why. This “comply or explain” approach creates a transparency mechanism that effectively raises the bar on what capital providers will expect from listed companies.

The interaction between these developments is important. Companies that invest now in developing robust transition plans will be positioning themselves to access transition finance, meet evolving disclosure obligations, and demonstrate credibility to capital providers assessing them under frameworks such as the TFC Guidelines. 

Framework development and interoperability

The loan trade associations are expected to progress the Transition Loan Principles appended to the LMA Guidance beyond the exposure draft stage in the coming months. This will provide lenders and borrowers with a clearer framework for structuring transition-labelled loans, supporting the broader effort to scale credible transition finance.

Looking further ahead, the direction of travel is towards greater interoperability and international alignment. The Transition Finance Council’s year two priorities include ensuring its TFC Guidelines become an international benchmark with cross-border interoperability, and there is growing dialogue between the UK and other jurisdictions on aligning transition finance frameworks into a common language. The loan trade associations and ICMA are also expected to refine their existing guidelines and work towards greater compatibility, rather than produce new frameworks. 

Conclusion and key takeaways

The transition finance landscape continues to move quickly, and the practical steps that corporates can take to prepare for additional change are clear: 

• develop a credible, science-aligned transition strategy;
• engage proactively with the emerging frameworks to understand how capital providers will assess credibility; and
• prepare for enhanced disclosure obligations, whether through the FCA's proposed rules or the Government's transition planning consultation. 

For businesses operating across multiple markets, the focus on interoperability and convergence of frameworks and regulations should ultimately simplify compliance and capital-raising. In the interim, it reinforces the importance of building transition strategies that are robust enough to satisfy multiple frameworks.