TheCityUK has responded to the Transition Finance Market Review call for evidence on how the UK can establish itself as a global hub for transition finance.
Our response highlights that transition finance is an economy-wide issue that is dynamic and continually evolving as targets shift, new technologies become available, and science develops.
The response outlines key barriers to accessing and deploying transition finance and provides recommendations to create a more supportive ecosystem for transition finance in the UK.
Key points raised in TheCityUK response to the Transition Finance Market review call for evidence include:
- The transition to net zero is not a point-in time assessment, but a process that is context and location specific, with different jurisdictions at different starting points and transition stages.
- There is a need for greater clarity on the scope of transition finance, in particular the means to deliver the results consistently across all sectors and jurisdictions. Any recommendation from the Review should be suitably broad and adaptable for use in multiple contexts.
- Transition finance should be directed towards economic activities that are compatible with a credible net zero transition, in particular those activities in high-emitting and hard-to-abate sectors. These sectors are often the supply chain of the wider economy, and their decarbonisation journey is essential to ensuring the UK's wider economic transition aligns with the UK's net zero target and Paris Agreement goals.
- Transition plans and taxonomies can provide helpful tools to support the provision of transition finance by allowing informed decision making. It will be important for the UK to work towards greater international harmonisation and work with the international community to ensure any standards and frameworks take into consideration different regional pathways.
- We consider there to be several barriers limiting the ability to access or deploy capital and financial services to support a credible net zero transition. The absence of policy measures and incentives (e.g. grants, blended finance mechanisms, and tax incentives) and a lack of favourable economic conditions to make investments commercially viable are identified as key barriers.
- Government has a critical role to play in creating a supportive ecosystem for transition finance by creating the right economic conditions to make investments commercially viable and introducing policy measures and incentives to enable private finance to be directed to transition activities.
- Government should optimise blended finance mechanisms to de-risk investments and generate the necessary flow of transition finance as these mechanisms can play a key role in addressing investment risks in transition finance.
- There is a greater role for public finance institutions and multilateral development banks (MDBs) to play in derisking and scaling transition finance. In particular, through the provision of 'patient financing' - i.e. long-term financing with no need for high returns in the short term.
- The financial and related professional services industry is crucial to the provision of transition finance both domestically and globally. The industry is international in nature and companies are looking to invest in projects and companies which are regarded as attractive propositions for likely investment returns. Government should focus on making the UK an attractive destination for transition finance.
- There is an opportunity for the UK to lead by example through its approach to transition finance. The UK should showcase that, while solutions at this point might not be perfect, we need to start to move the dial on transition finance. The UK could further facilitate development of global thought leadership on transition finance through strong international collaboration, advocating for common implementation of international standards, and spearheading technology use-cases.