UK: Transition Financial Markets Review: Publication of Call for Evidence | Hogan Lovells

Background to the Transition Financial Market Review (TFMR)

In its latest 2023 Green Finance Strategy, the UK Government has announced it will commission a review into how the UK can become the best place in the world to finance the transition.

A key area of ​​feedback to the Green Finance Strategy calling for evidence in May 2022 was related to transition finance. Financial institutions and markets have raised the need for continued innovation to provide products and services that support high-emitting companies to decarbonize and reduce their environmental impact. To support this, the Government commissioned an independent, industry-led market review. The terms of reference for TFMR were published in December 2023 and TFMR was officially launched in January 2024.

TFMR helps businesses align their investments with a trusted net-zero pathway

TFMR looks at what the UK financial and professional services ecosystem needs to do to become world-class. Leading Transition Finance Hub and Global Center of Excellencee. TFMR aims to enable UK and international businesses and investors to align their investments along a trusted net-zero pathway, respond to climate-related risks and opportunities and contribute to the net-zero transition. That’s what I mean.

“Transition finance” refers to financial products and services that support high-emission companies and activities toward long-term decarbonization. TFMR primarily focuses on challenges specific to high-emission sectors that are difficult to reduce.

TFMR aims to develop the transition finance market and identify opportunities and UK market share.

The TFMR requires key stakeholders, including financial institutions, real economy companies, professional services firms, regulators, policy makers, and civil society, to:

• Research and develop ideas.
• Identifying opportunities and introducing best practice to demonstrate the competitiveness of UK financial services internationally.and
• Secure market share in transition finance.

TFMR will focus on the role of the private sector, consider how market tools can have the most impact, and explore how best to create the conditions for:

• Expand and grow funding centered on transition finance. We design attractive, investable products to unlock long-term capital while preserving the integrity of climate goals and helping build confidence in financial solutions.

• Maximize your UK-based financial services opportunities Develop, build and export high integrity transition financial services.

• Positioning the UK professional services ecosystem as a global hub (Legal, Audit, Consulting, Data and Analytics, Skills and Education).

What is the focus of the TFMR Request for Evidence?

A call for evidence published on 14 March 2024 states that the UK has a significant opportunity to act as evidence. A global hub for funding transition activitiesto be successful you need to: strike the right balance During existence:

• ambitious – Encourage meaningful and credible progress that is consistent with the UK’s legally binding 2050 net zero target and carbon budget, and global climate and nature goals. paris agreement; and

• fit for purpose – Promoting transition finance among market players in a manner consistent with policy, regulation and technology developments, while avoiding unintended consequences such as capital flight, creation of social and systemic risks, and threats to environmental health. Enable adoption and expansion.

The call for evidence will focus on the following key topics:

• Scope of transition financing – What are the scope and boundaries of transition finance? How should transition finance be defined? The call for evidence will therefore include which sectors of the economy are included in the scope and what activities are included in that definition. includes considerations about the types of financial instruments, and which specific financial investments, products, and services are included in scope.

• Ensuring the authenticity and integrity of transition financing – What is the difference between integrity and trustworthiness? The call for evidence seeks input on migration plans and the flexibility, taxonomy, and interoperability of standards and frameworks. Table 3.2 provides a non-exhaustive list of standards, frameworks, tools and guidance related to transition finance and asked respondents in detail which standards they use to guide their approach to transition finance. I’m asking.

• Barriers to applying for transition financing – TFMR is keen to understand the specific barriers and risks in applying transition finance across a wide range of sectors, including finance.

• Opportunities for new innovative use cases in transition finance – TFMR seeks to understand the types of investments, products, and services currently being used for transition finance, and will also consider opportunities for innovative use cases for transition finance. The review will also consider whether certain labeled transition financial instruments, such as transition bonds and loans, will need to adopt additional requirements to address concerns about potential greenwashing risks.

• Building the UK as a global hub for transition finance – TFMR discusses how governments and other public institutions, such as public financial institutions and local authorities, should work with industry, the financial sector and investors to create a supportive ecosystem for transition finance. We are considering.

Respond to TFMR’s Request for Evidence by April 25, 2024

The call for evidence is open until April 25, 2024. You can answer here. In spring 2024, TFMR will participate in a stakeholder engagement program. A report is expected to the UK Government in summer 2024. We will be closely monitoring developments on this topic, so please contact us if you would like to discuss further.