UK Transition Finance Council consults on draft Transition Finance Guidelines to help assess credibility of transitioning entities globally

On 18 August 2025, the Transition Finance Council (TFC) launched a consultation on draft Transition Finance Guidelines to support global alignment on what constitutes credible transition finance. 

While investment in mature green sectors is growing rapidly, many transitioning sectors (such as heavy industry, transport and agriculture) require capital to decarbonise. The consultation therefore focuses on finance to transitioning sectors and entities, particularly those in high-emitting or hard-to-abate sectors. 

Stakeholders - including banks, insurers, asset managers, regulators, governments, public financial institutions and corporates – are invited to provide feedback to ensure the Guidelines are clear, practical, globally interoperable, and usable for all market participants. The TFC are trying to find the right balance between being too prescriptive and too high level.

This preliminary consultation focuses on entity-level application, to help stakeholders assess the credibility of transitioning entities. Investors need robust tools to assess whether entities are credibly transitioning and in a way that is financially viable. Currently, there is no consistent framework capable of application across asset classes for identifying and evaluating credible transition finance at entity-level. Without a credible assessment framework, both capital providers and transitioning entities risk exposure to greenwashing claims, and capital may fail to flow to where it is most urgently needed. 

The voluntary Guidelines are designed to be applicable internationally and are interoperable with key disclosure frameworks such as those developed by the Transition Plan Taskforce (TPT) and International Sustainability Standards Board (ISSB) – though the guidelines are not a disclosure framework.

The TFC was co-founded by the City of London Corporation and the UK government in February 2025 following one of the recommendations in the Transition Finance Market Review (TFMR) in October 2024 (see our previous blog post). Although the TFC is a UK government-backed group, the Guidelines are intended for global application. 

Vanessa Havard-Williams OBE, Chair of the TFMR and former co-head of  Linklaters' ESG practice, stressed that “the energy transition requires us to think more about how high-emitting sectors make progress” and that “too much capital remains on the sidelines in part due to uncertainty over what qualifies as genuine transition finance”. 

Principles for assessing credibility 

The Guidelines establish four principles which are used to assess an entity's transition plan:

• Credible ambition. Showing ambition and setting targets to reduce emissions in accordance with the Paris Agreement goals.
• Action into progress. Demonstrating that the plan can be implemented and progressed.
• Transparent accountability. Implementing corporate governance procedures and disclosing results to demonstrate progress.
• Addressing dependencies. Analysing external and internal factors that might prevent success.

Each of the principles are assessed against six “universal factors” which are used to determine whether the principles have been met. There are also “contextual factors” that allow mitigating circumstances to be considered in the overall assessment against the principles.

Credible pathways are defined by reference to the goal of “holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels”. However, the Guidelines note there should be flexibility on the pathways deemed credible based on where a company is active:  “Significant and sustained overshoot [of the 1.5°C goal in the Paris Agreement] has become a possibility … There is now a wider appreciation that different sectors and jurisdictions will move at different speeds to decarbonise.”

The Guidelines do not include a 2050 public net-zero target as a universal expectation. The Guidelines focus on the short- and medium-term, as this is when the TFC believe the investment horizons are clearer and material dependencies can be determined. 

The Credible Ambition Principle sets a requirement to reduce emissions in a structured way consistent with a Credible Pathway, setting interim targets and metrics and actions to achieve them. There should be quantitatively defined short- or medium-term decarbonisation targets, covering material emission sources. This includes emissions across Scopes 1 and 2, and “where possible” Scope 3.  There should be a long-term ambition for overall emissions reductions, though a quantified long-term target is not required. 

Progress against targets should be monitored on at least an annual basis. The capital provider will need to periodically assess the sufficiency of the entity’s approach, including adequacy of financial budgeting and other resourcing and expected financial performance.

The Guidelines also address “carbon lock-in”. Entities are expected to avoid or minimise investment in new (or extensions to existing) high-emitting assets or activities whose operational life will continue beyond the time set pursuant to the relevant Credible Pathway. Entities that fail to do so may fall outside a transition classification unless there are mitigants - such as transition readiness or sunset provisions and reasonable, context-specific constraints to decarbonisation shaped by the regulatory and energy environment of the country in which they are located, independent of the entity’s ambition. 

Next steps 

The consultation closes on 19 September 2025. 

A second consultation on the revised Guidelines will be launched later in 2025, with additional asset class specific content and case studies. 

The final Guidelines are expected to be published in March 2026.

For more information on transition planning in general, see our collection of materials here.