TFMR report: Policy and credibility guidelines needed to accelerate transition finance

The UK’s Transition Finance Market Review (TFMR) has published a list of recommendations to turn the country into a transition finance leader – including the development of credibility guidelines and policy levers.

The recommendations are the result of nine months of review of existing literature on the topic, as well as engagement with stakeholders across the financial sector, companies, NGOs and government, at the request of the UK government.

The purpose of the Transition Finance Market Review was to identify the actions needed to accelerate finance for the climate transition and make the UK a leader in this market. The review concluded that the UK should focus on credibility and interoperability, establishing “a suitable approach to credibility and integrity in transition finance markets”.

It also recommends developing tools to build understanding of and confidence in transition finance as a market, including by creating a classification system for different climate transition activities, as well as credibility guidelines – similarly to what the Transition Plan Taskforce (TPT) has achieved for corporate transition plans.

“There is a global race to provide the transition finance and technologies that the world needs, and while the UK has the right ingredients, it will lose out if it does not match other markets in demonstrating that it is serious, proactive and will stay the course,” said TFMR Chair Vanessa Harvard-Williams.

Communication, capacity building and governance for transition finance

Overall, the TFMR identified the need to focus efforts on improving communication, building capacity and ensuring good governance in order to develop the transition finance market.

The report recommends the creation of three governance bodies to ensure accountability: a transition finance council tasked with oversight, capacity building and communication, a net zero council to develop sector-specific transition pathways and recommend policy action, and a transition finance lab to work on dedicated financing structures.

All three bodies should collaborate closely with corporates, civil society and financial institutions to ensure transition finance is properly classified and equipped with the right market and policy instruments.

On a broader level, the market could also benefit from what the TFMR calls “macro-level transition levers”, including taxes, subsidies, and carbon pricing – all “pushing towards achieving net zero”.

“Our engagement with companies and financial and professional services firms showed untapped enthusiasm to seize the opportunity afforded by the transition, which depends on a supportive and stable policy environment,” added Harvard Williams.