UK Transition Finance Market Review Publishes Recommendations

The U.K. Transition Finance Market Review published its report for scaling transition finance. The report sets out the TFMR's recommendations on how to scale a high-integrity transition finance market that can support both U.K. and global net zero ambitions. More than 20 of A&O Shearman's experts across multiple specialisms contributed to the TFMR's work. The team was led by partners Matthew Townsend and James Roe and Senior Knowledge Lawyer Ying-Peng Chin (member of the TFMR secretariat), with Counsel Tamara Cizeika, Knowledge Counsel Kirsty Taylor and Knowledge Lawyer Chloe Barrowman advising from the Financial Services Regulatory group. In broad terms, the TFMR's findings can be organized around three core pillars for scaling a robust transition finance market:

• Establishing clarity and credibility, i.e., confirming the scope and objectives of transition finance and creating a robust transition market from the top down.
• Scaling finance and transition activities, making transition finance solutions commercially viable at deal level.
• Scaling finance for transitioning entities towards transition strategy assessment being at the core of financing decisions, including general-purpose and passive investment.

In response to the report, the Financial Conduct Authority published a new webpage providing its feedback. Overall, the FCA welcomes the report. It acknowledges that in order to meet the U.K.'s net zero target a significant increase in transition capital will be required. It also recognizes the challenges and complexities for firms in structuring this kind of finance. Transition finance remains a priority for the FCA and it acknowledges the TFMR's call for more communication on how the FCA views the TFMR's role within its wider work and regulation. The objective is to support the market to scale with integrity, with the right standards and guardrails to help build trust. The FCA also sets out a number of steps it will undertake to achieve this, including working with the Government on a new regime for ESG ratings providers, to further support integrity in transition-related ratings and building on the productive engagement it has had with the TFMR, industry participants and international bodies to progress transition finance, including through the Climate Financial Risk Forum.

The FCA also recognizes concerns some firms have raised to the TFMR about being accused of greenwashing when making claims about future decarbonization and refers them to its guidance for the anti-greenwashing rule, which gives more information about the FCA's approach, including on transition-related claims.

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