United Kingdom Issues Standards for Evaluating the Authenticity of Transition Finance Support

The UK Transition Finance Council, established in February 2022, has taken a significant step forward in the fight against climate change by publishing draft voluntary guidelines for consultation. The council, which comprises the UK government, the City of London Corporation, representatives from the financial industry, regulators, and civil society, aims to make the UK the global hub for transition finance.

The guidelines, set to be finalised in 2026, focus on assessing the credibility of an entity's ambition, near-term transition planning, and progress. They are designed to be applicable where a formal transition plan is not yet in place or disclosed, providing minimum expectations for credible transition finance. The guidelines are particularly aimed at helping lenders assess whether carbon-intensive companies are making progress towards reducing emissions in sectors such as cement, shipping, and transport.

Alok Sharma, the council's chair and former president of the Cop26 climate conference, stated that the guidelines will help assess transitioning companies in high-emitting sectors. He emphasised the need for strict, enforceable, science-based criteria to avoid transition finance perpetuating business as usual.

The International Financial Reporting Standards (IFRS) Foundation has also released new transition plan guidance on disclosures relating to transition plans. This guidance builds on materials from the Transition Plan Taskforce (TPT) to support the implementation of IFRS S2, the climate-focused sustainability standard.

However, not everyone is entirely satisfied with the guidelines. Positive Money, an advocacy group, has expressed concerns that the guidelines leave room for companies' targets and plans to be misaligned with 1.5oC pathways. They argue that not all companies can decarbonize, and that fossil fuel companies' business models are fundamentally incompatible with net zero, and should not be able to access transition finance.

The council's longer-term ambition is that the guidelines become a global benchmark for classifying credible transition finance. They are designed to complement existing global and domestic frameworks such as those developed by the Transition Plan Taskforce (TPT) and International Sustainability Standards Board.

The article was updated on August 21, 2025, to include comments from Positive Money, emphasising the importance of ensuring that transition finance supports the necessary transition to a net-zero economy.

As the UK continues its efforts to combat climate change, the publication of these draft guidelines marks a significant milestone in the country's transition finance strategy. The final version of the guidelines, expected in 2026, will undoubtedly play a crucial role in the UK's ambition to become the global hub for transition finance.

United Kingdom Issues Standards for Evaluating the Authenticity of Transition Finance Support