UK transition plans: A chance to drive sustainable finance at scale

Transition plan assessments are rapidly emerging as the backbone of sustainable finance, offering investors a clearer line of sight into real-world decarbonisation. 

These tools need consistent, comparable data. The UK’s recent consultations on UK Sustainability Reporting Standards and transition plan requirements recognise the need to close the data gaps and for corporates and financial institutions to take concrete climate action.  

For companies, transition planning is no longer a box-ticking exercise but a strategic imperative. The EU has embedded this logic in its sustainable finance package. EU prudential supervisors are integrating transition planning into risk supervision and stress testing. As the European Central Bank warns, “failing to plan is planning to fail”. The UK must catch up. 

Mitigate risk, unlock capital 

Investors have increasingly institutionalised broad environmental, social and governance risk frameworks. As climate risks intensify, forward-looking, credible plans to transition to net zero are emerging as a more focused way of assessing company fundamentals.   

Developing a credible transition plan is how a business connects emissions targets to decision-making, capital allocation and governance, ultimately showing resilience in the face of climate shocks. It is not a compliance burden; it is a fundamental test of corporate readiness for a low-carbon future. 

Transition planning can help both companies and financiers mitigate climate-related financial risks. This is why mandating credible transition plans — starting with economically significant and financially material firms — is essential. If left unmanaged, exposure to climate scenarios could amplify firm-level vulnerabilities and escalate into systemic financial market instability. Credit approaches that incorporate transition plans could avoid an overly short-term focus, which would risk overlooking these vulnerabilities.  

At the same time, finance can drive the transition and climate mitigation. The City of London’s Finance Playbook rightly acknowledges that sector transition plans require wider financial planning. Adopting robust transition plan assessments could help unlock investment at scale. 

More nuanced frameworks 

Ensuring capital flows to where it is most needed is a prerequisite for real-world decarbonisation. This underscores the case for nuanced transition finance frameworks that embed 1.5°C-aligned targets, time-bound fossil fuel phase-out, full scope emissions coverage, transparent carbon budgets and capital expenditure alignments. 

Implementation is key. Most transition plans are not credible, according to a study by the TPI Global Climate Transition Centre at the London School of Economics and Political Science. Net-zero pledges without interim targets, enforceable pathways and detailed decarbonisation levers are ineffective. Ratings and frameworks grounded in science should be able to differentiate entities based on carbon lock-in risk, climate solutions’ feasibility, reliance on unproven technologies such as carbon capture and storage, and the robustness of monitoring mechanisms. 

A leadership test 

The UK government has often spoken of its ambition to be a leader in sustainable finance, beyond the domestic benefits of meeting its 2050 net-zero goal. Yet one year after major water supplier Thames Water’s credit ratings were downgraded to near-default — including its green bonds — the UK has still not revised its sustainable finance strategy. The country has decided not to proceed with a green taxonomy, leaving financiers without clear definitions of sustainable activity, and progress on the UK green gilts framework has stalled. 

By contrast, the EU’s European Green Bond Standard started applying in December 2024. Issuance aligned with the standard has reached more than €10 billion. The European Investment Bank has led by example, applying the framework in its complex portfolio across sectors and geographies. Meanwhile, earlier this year, Slovenia became the first European country to issue sustainability-linked bonds, proving that finance can be structured to reflect varied issuer pathways.  

Encouraging innovation in transition finance can strengthen accountability, such as by linking penalties to non-delivery. The UK has the chance to set the benchmark. It needs clear and coherent standards to move capital, reflect sector realities and phase out what is unsustainable.  

This article was first published in Business Green.