The UK’s Transition Finance Council, a government-backed coalition comprising asset managers and asset owners, has launched a consultation on draft guidelines to help investors assess whether companies are credibly shifting towards lower-carbon business models.
The body, whose purpose is “to establish the UK as the global hub for raising and deploying transition finance”, has proposed the guidelines to help unlock capital for heavy-emitting sectors such as heavy industry, transport and agriculture, whose decarbonisation is viewed as key to reining in climate change.
The guidelines are also being framed as useful for corporates and governments and international organisations.
The Council was launched by the government and the City of London as a follow-up to the Transition Finance Market Review, chaired by Vanessa Havard-Williams. Investors including M&G, Columbia Threadneedle and Brunel Pension Partnership are members.
Alok Sharma, former UK international development secretary and chair of the Council, said the draft guidelines “are a critical piece in developing a UK transition finance market that is open, investable, aligned with international standards and sets a global benchmark”.
Havard-Williams said: “The energy transition requires us to think more about how high-emitting sectors make progress.
“Today, too much capital remains on the sidelines, in part because of uncertainty over what qualifies as genuine transition finance. These draft guidelines are an important step towards building consistency for companies and investors.”
The guidelines focus on financing of non-financial companies rather than of projects or activities. They apply across asset classes and geographies, including for emerging markets and developing economies.
Building on transition planning disclosure frameworks, four principles each address a dimension of credibility in relation to an entity’s transition planning. Factors, such as a financial viability factor, are “evidence points for assessing whether the Principles are being met”.
2050 target not necessary
According to the consultation document, entities will not have to have a 2050 public net-zero target to be able to count as being on a credible transition path, although “having a public long-term ambition is desirable and should be considered by the users of the guidelines”.
The consultation document states that if an entity’s pathway is not aligned with a 1.5°C scenario, it should explain why, and what temperature outcome its pathway aligns to within the framework of the guidelines.
“The Guidelines’ focus on delivery is centred on the short-term and, at a more general level, on the medium term, as this is when the investment horizons are clearer and material dependencies can be determined,” the consultation document states.
The consultation will close on 19 September. A second consultation, building on feedback, is foreseen for November, with the intention to issue a final version of the guidelines in 2026.
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