Transition finance will play a critical role in supporting global decarbonisation, facilitating capital to all parts of the economy, including high-emitting and hard-to-abate industry sectors, as well as innovation and climate technologies.
Global investments in energy transition technologies must more than quadruple to over $5 trillion annually for the world to stay on a 1.5°C pathway1; and in the UK, the 2023 Green Finance Strategy estimated that UK-specific decarbonisation efforts are expected to require £50-60bn of capital investment each year through the late 2020s and 2030s2. Yet the transition finance essential to supporting this is being hampered by a number of fundamental challenges, as detailed by our Group Head of Sustainable & Transition Finance in his perspective piece, ‘Transition finance – the backbone of the energy transition’.
Despite market-led efforts, there has not yet been consolidation around consistent definitions, frameworks or support mechanisms needed to enable the scale up of transition finance to the levels needed to meet financial and decarbonisation targets. As a consequence, financial institutions remain cautious about allocating or facilitating capital into transition activities, or identifying such financing as transition-focused.
Governments, regulators and public policy have an important role to play in overcoming these barriers. Well-targeted public policy interventions can support the development of the environment for scaling transition finance and enable private market activities to appropriately allocate and align finance to decarbonisation pathways; this would ultimately allow the market for transition finance to develop and thrive, both in the UK and internationally.
Getting this right would open significant opportunities for both overall global decarbonisation as well as UK-specific climate and economic goals, including:
Increased capital flows
Providing companies with access to the financing needed to support decarbonisation efforts, innovate and implement more sustainable practices.
Economic diversification
Transition finance presents an opportunity to diversify the UK’s economic model and foster growth in new sectors, supporting the UK’s future economic security.
Job creation
Mobilising transition finance capital has the potential to create more and better-quality jobs, both in transitioning sectors, as well as new sectors such as climate tech.
International leadership
Transition finance presents a real opportunity for the UK to re-assert global leadership, helping to set standards for integrity and innovation in financial products and services.
Transition Finance Market Review
Barclays has been proud to participate in the Transition Finance Market Review, which has put forward a compelling snapshot of the current state of transition finance, the main barriers to its scale, and a set of recommendations for government, regulators and market actors.
The UK has long been at the forefront of sustainable finance policy, and has already paved the way in this evolving field of transition finance through the efforts of the Transition Plan Taskforce, and the publication of the Transition Finance Market Review’s recommendations. There is an opportunity to build on this, however, and play a leading role in the emerging shape of transition finance at the international level.
