Climate Transition Focus: Third Edition – update on transition planning and transition finance developments, primarily in the UK and the EU

In this issue

Since our last update, we have seen continued engagement from the State and the private sector in furthering ambitions towards net zero despite geopolitical headwinds. In our briefing below, we look at updates from the UK, international trade associations and further abroad. We have also seen a renewed focus on finance for adaptation and resilience at a national (rather than international) level. Read our previous updates here and here.

1. UK Transition Finance Council updates

In the last year, the Transition Finance Council (“TFC”) has been active engaging and publishing documents across its three working groups: (i) credibility and integrity, (ii) pathways, policies and governance and (iii) scaling transition finance.  Below we set out the key updates since our October 2025 update.

TFC publishes of Year-end progress report: On 26 March 2026, the Transition Finance Council (“TFC”) published its Progress report following its first year of operation.

It notes that its achievements in the last year have included publishing key documents to support scaling transition finance and strong momentum through public and stakeholder engagement. The report assesses progress made by UK stakeholders against Transition Finance Market Review recommendations.

The TFC notes that in its second year, it plans to shift from framework development to implementation and global engagement, structured around the following priority themes:

• Internationalisation and Alignment, positioning the Transition Finance Guidelines as a globally recognised reference point
• Industry Road-Testing and Domestic Adoption, supporting UK and international financial institutions and corporates to apply the Guidelines in real-world financing decisions
• Market Development and Instruments, catalysing investment by working with industry to advance transition-aligned market instruments. 

The following new documents have also been published:

• The Transition Finance Guidelines, Exposure Draft (March 2026) – the publication of the Exposure Draft for the Transition Finance Guidelines follows the second consultation launched on 3 November 2025^[1].  The publication of the final guidelines is planned for Spring 2026. 
• Implementation Handbook (March 2026).
• Four policy briefs for scaling transition finance flows (March 2026) – the policy briefs are interdependent showing three levels of a pathway to unlock capital and scale transition finance flows through “Allocate-Align-Activate”, particularly looking at clarification to pension fund  trustees’ fiduciary duty, transition-labelled instruments and investment-ready sector transition pathways.
• UK roadmap to scaling Long-Duration Energy Storage (“LDES”) (January 2026), recognising the importance of LDES for the delivery of secure and reliable energy.

2. Transition plans

We have seen publications in the last six months on nature-positive transition pathways and nature in transition plans reflecting the need for companies to understand and mitigate their nature-related risks and to support States in implementing policies and pathways to meet their obligations and targets under the Kunming-Montreal Global Biodiversity Framework (“GBF”), including the 30x30 target requiring 30% conservation of the world’s land and waters by 2030. 

CDP updates guidance on financial sector transition plans: On 15 April 2026, CDP (formerly Carbon Disclosure Project) updated its technical note on Financial Services Transition Plans and Net Zero Commitments, aligning with its 2026 disclosure framework and developments in transition planning since 2023. 

Sectoral Nature-Positive Transition Pathways – the case for co-designed transition pathways: On 24 February 2026, Discussion paper: Sectoral Nature-Positive Transition Pathways was published introducing Sectoral Nature-Positive Transition Pathways (“NPPs”) “as a government-led approach to guide whole-economy shifts toward national environmental targets”, including those under the GBF.

An NPP “is a sectoral plan that provides guidance to businesses and government on how to align a specific economic sector (such as agriculture, energy, finance, construction, technology)” with a country’s National Biodiversity Strategies and Action Plan (“NBSAP”) or other national environmental targets.

The paper encourages governments to engage with businesses, academia and civil society to co-design and subsequently deliver equitable, practical and cost-effective transition pathway for specific sectors, identifying impacts on nature, setting transition milestones and aligning economic activity with national biodiversity targets. The fact that they are sector-specific and relevant to particular States means that they can be aligned with a country’s specific industry and starting point.  

As with net zero pathways, NPPs are intended to help governments to mobilise private finance, improve cross-sector coordination and enhance long-term economic resilience by providing clear direction and policy signals in relation to nature and biodiversity.  Governments are encouraged to also integrate with existing net zero pathways. They aim to provide businesses with offer investment certainty, support risk management, and enable alignment with emerging sustainability disclosure frameworks, such as the Taskforce on Nature-related Financial Disclosures (“TNFD”). In the paper, they set out the benefits of NPPs for governments and business.

TNFD publishes Guidance on nature in transition plans: On 5 November 2025, the TNFD published Guidance on nature in transition plans. Their press release states that the guidance “breaks down the process of aligning with the goals and targets of [the GBF] into a coherent set of forward-looking strategies, actions and accountability mechanisms, built into the organisation’s main business strategy”.

The guidance explores how transition plans for nature-related issues can help organisations communicate their plans to respond and contribute to, not just the Paris Agreement, but also the GBF.  

3. Transition finance

FCA publishes findings from Transition Finance Pilot: On 21 May 2026, the UK Financial Conduct Authority (“FCA”) published research notes which set out its findings from the Transition Finance Pilot. The Pilot was established to examine barriers to scaling finance for climate solutions and identify how to address them. The FCA’s secondary objective is international competitiveness and medium- to long-term growth and the FCA sees closing the climate investment gap as a strategic growth opportunity.

The research paper was informed by a literature review and a programme of engagement with stakeholders (specifically capital providers and climate solutions companies and product developers at different stages of maturity). It recognises that there is no silver bullet to scaling transition finance but equally the FCA did not identify any material barriers to finance of viable climate solutions within the FCA’s regulatory remit. The key findings include three main system-level challenges that affect how efficiently capital is matched to opportunity:

Stakeholders highlighted uncertain demand signals (for example, around scale, coverage and durability of carbon markets and limited use of policy interventions) and delivery risks as two key policy issues  common across engagements. This was particularly pronounced where low carbon alternatives face a cost premium compared with incumbent options and costs were shared across the supply chain.  

The paper sets out a number of interventions to help resolve these systemic challenges which will require coordinated action across the market, including Government, public finance institutions, financial services, and climate solutions companies.

Financing climate transition – Products, plans and prospects: The transition finance market is evolving at a rapid pace. We are now in a position where borrowers and issuers can benefit from labelled instruments – transition loans and transition bonds are taking off, supported by enhanced market standards, increased awareness and other broader transition movements in planning and reporting. In this briefing, we look at recent growth trends and dive into the tools provided by the latest LMA, APLMA, and LSTA Transition Loan Guidelines and the ICMA Climate Transition Bond Guidance. Read more in our briefing here.

Canada establishes Taxonomy and Transition Planning Council: On 8 April 2026, new members of the Canadian Taxonomy and Transition Planning Council were announced. The Council will oversee the development and approval of a new Canadian sustainable finance taxonomy, establishing evidence-based criteria for “green” and “transition” investments. The Council will also oversee the creation of climate transition planning guidance for Canadian companies.

Fireside chat with the UK FCA on sustainable finance, the transition to net zero, sustainability reporting and defence: On 19 November 2025, we welcomed Alicia Kedzierski, Head of the Sustainable Finance Department at the FCA for a cozy fireside chat. Alicia and Rita Hunter discussed a range of issues, including the FCA's current trajectory on sustainable finance, reporting, ESG ratings and transition and answered some of our clients' questions. Read more here.

How US legal frameworks must evolve to deliver Vision Zero:  As cities accelerate Vision Zero strategies, legal frameworks are struggling to keep pace. In this interview, we explore where responsibility sits between federal, state, and local authorities and the regulatory shifts needed to support safer streets, new mobility technologies and climate-aligned transport systems. Read more here. 

4. Just transition

Bank of England Staff working paper on Productivity implications of the move to net zero published: On 13 February 2026, the Bank of England published a Staff Working Paper (No. 1,171) examining the effect of the move to net zero in the UK on productivity. 

The model used examines the theories which suggest that productivity should increase or decrease as part of the net zero transition and examines the potential trade-offs in the short-, medium- and long-term.  Looking at the introduction of carbon taxes, changing GDP and working hours, the results “suggest that unless investment in green technology leads to significant technological gains elsewhere, it is unlikely that the move to net zero will have a large effect on productivity growth above and beyond the direct effect resulting from the capital deepening that will be associated with it”.

5. Adaptation

OECD publishes report tracking progress towards the USD 100 billion annual UNFCCC climate finance goal: On 21 May 2026, the OECD published a report setting out progress towards the goal set under the United Nations Framework Convention on Climate Change (“UNFCCC”) for developed countries to mobilise USD 100 billion annually for climate action. This goal was initially set to be reached by 2020 and was then extended through to 2025.

The preceding OECD report showed that the goal was met for the first time in 2022 and the present report showed that the goal was also met in 2023 and 2024.  The report looks at where this financing has come from. The goal has now been superseded by the New Collective Quantified Goal (“NCQG”) on climate finance which calls for developed countries to take the lead in delivering at least USD 300 billion annually for developing countries’ climate action by 2035.  It also calls for all actors to work towards mobilizing USD 1.3 trillion in international climate finance over the same timeframe^[2]. 

UK Climate Change Committee (“CCC”) publishes adaptation report: On 20 May 2026, the CCC published the fourth independent assessment of UK climate risk.  The report explains that currently not enough is being done to adapt the UK to climate change.  It acknowledges that adaptation is not just for the government to achieve but that the government can catalyse adaptation by making policy and market signals to drive investment from the private sector.  How much adaptation is needed depends on the public, what is valued and how much the public wants to pay.  The CCC found that the public would like to limit risk to what we currently have, acknowledging the costs of going further.  

GFANZ issues guide on physical risk and adaptation for financial institutions: Glasgow Financial Alliance for Net Zero (“GFANZ”) has published Physical Risk & Climate Change Adaptation and Resilience: A Curated Guide for Financial Institutions. The guide provides a curated overview of adaptation and resilience finance resources from public and private entities, summarising core elements and arranging them in themes.  

It is intended to be a practical entry point for financial institutions looking to systematically integrate physical risk assessment and adaptation and resilience into their activities.

European Commission publishes responses to climate resilience consultation: On 18 May 2026, the European Commission published its responses to its consultation on the European Climate Resilience and Risk Management – Integrated Framework.

There was overall support for the initiative.  The most frequent priorities (mentioned in at least 60% of the responses related to:

• stable, predictable, long-term EU funding and blended-finance tools for adaptation 
• harmonised risk-assessment standards with shared climate scenarios
• “resilience-by-design” criteria for all public spending and procurement
• nature-based solutions as default first line of defence 
• systematic integration of health, incl. heat-health, into all plans.

Respondents considered the public sector’s role in climate resilience and identified several key obstacles to scaling up investments in climate resilience in relation to finance and insurance. These include high upfront costs and weak incentives, lack of reliable and harmonised climate risk data, difficulty measuring and monetising resilience benefits, regulatory complexity and policy uncertainty and insufficient capacity and limited private-sector engagement. 

Respondents identified measures to overcome the above obstacles as: 

• harmonising methodologies, metrics and data
• de-risking mechanisms and financial instruments as well as targeted public funding
• harmonising regulatory frameworks and make them clearer and more stable to have long-term policy certainty
• integrating resilience into public policy and investment rules and 
• improving pricing of risk and incentives. 

Our global Sustainable Finance & Investment group brings together a multidisciplinary global team that provides clients with best-in-market support.  We are following developments relating to the ESG and the transition to Net Zero, so please get in touch if you would like to discuss.

Stay ahead with timely curated developments, insights and thought leadership on ESG regulation with our ESG Regulatory Alerts tool.  

This note is intended to be a general guide to the latest ESG and climate transition developments. It does not constitute legal advice.

Authored by Bryony Widdup, Rita Hunter and Emily Julier.