The FCA’s Transition Finance Pilot and the future of UK climate finance

On 21 May 2026, the Financial Conduct Authority (“FCA”) published the findings from its Transition Finance Pilot - see FCA report. 

The Pilot was a market engagement exercise, announced as part of the Government's “Financial Services Growth and Competitiveness Strategy” in July 2025, led by the FCA and supported by the Prudential Regulation Authority (“PRA”) and Green Finance Institute (“GFI”), to examine barriers to scaling finance for climate solutions and to identify practical actions to address them. 

The FCA has found the barriers to transition finance as systemic rather than limited to any single regulatory constraint. The FCA did not identify material barriers within its own regulatory remit and does not consider there to be a need for new rules or changes to existing rules as a result of this work. 

Despite this, the FCA report identifies a set of system-level challenges that are holding back the efficient flow of capital to climate solutions, and it sets out a clear direction of travel for market participants. 

With the UK competing globally to be the leading hub for transition finance, a theme we have tracked closely through the Transition Finance Market Review and the Transition Finance Council's Guidelines (see our collection of materials), the FCA report is relevant to capital providers, climate solutions companies, and insurers in the UK and further afield.

Key takeaways

• The FCA found no material barriers within its own regulatory remit preventing viable climate solutions from accessing finance and does not plan to introduce new rules as a result of this work.

• Three system-level challenges are holding the market back: 

  • many climate solutions cannot yet demonstrate the commercial maturity needed to attract private capital; 

  • capital is not always well-matched to opportunity despite strong appetite; and 

  • information and capacity gaps create costly frictions across the market.

• The FCA has provided helpful clarity on greenwashing. Its anti-greenwashing rule (see our Quick Guide on this) does not prevent firms from financing capital-intensive climate solutions, provided sustainability claims are transparent and contextual.

• The GFI is launching a Transition Finance Lab to bridge the gap between the Government's climate-solutions ambitions and investable opportunities. 

• The FCA's next steps focus on sharing its findings with UK and international stakeholders, developing forward-looking transition finance metrics through the Climate Financial Risk Forum (“CFRF”), and exploring how its regulatory framework can better support SME access to finance.

FCA’s findings: a deeper dive 

The FCA Pilot drew on a literature review and bilateral engagement with more than 45 market participants spanning venture capital, private equity, banks, institutional investors, public finance institutions, and climate solutions companies at all stages of development, from early-stage spinouts and start-ups through to commercially mature businesses. 

Additionally, the Pilot focused specifically on scaling finance for climate solutions i.e., the technologies, products and services which will facilitate the UK's transition to a lower carbon economy and reduce emissions across energy, transport, buildings, industry and agriculture. It placed less emphasis on finance for the decarbonisation of existing assets and entities, and the FCA did not seek to define transition finance for the purposes of this work.

Finding 1: the gap between technical and commercial readiness

Even where technologies are proven, climate solutions often struggle to demonstrate the revenue certainty and risk-adjusted returns that private capital requires. 

Banks need established and predictable cashflows, which can be absent at the proof-of-concept and early commercialisation stages. Investors consistently linked gaps in policy certainty to heightened perceived risk. 

Where Government targets are not accompanied by clear assumptions, credible interventions, and coordinated delivery roadmaps, revenue certainty is hard to assess. Planning, grid availability, workforce skills, and supply chain constraints compound the problem for solutions that depend on coordinated system-wide delivery.

Finding 2: capital mismatches 

The UK has deep and diverse pools of capital, and regulation was not viewed as a material constraint. 

For commercially viable projects, mismatches in ticket size, tenor, liquidity needs, and risk appetite can still prevent efficient deployment. 

Climate solutions companies particularly highlighted a persistent “missing middle” of growth capital - the gap that opens up as companies scale beyond venture capital but before they can access conventional bank debt or institutional investment. The Startup Coalition's 2025 ClimateTech Index found that only a third of companies raising a Series A went on to raise a Series B.

Finding 3: information and capacity gaps create friction

Uneven access to information, skills, and data reduces confidence and increases transaction costs.

Climate solutions companies struggle to navigate a complex and evolving policy landscape, to understand which types of capital suit their business models, and to find their way through a decentralised public finance landscape. 

Capital providers, meanwhile, have limited visibility of investable pipelines and gaps in their understanding of novel technologies. 

These frictions rarely block financing outright, but they slow decision-making and hit smaller companies hardest.

FCA’s approach to greenwashing concerns

The FCA has indicated its treatment of greenwashing concerns, which will be of particular interest for financial institutions. 

Some market participants expressed caution about financing capital-intensive climate solutions where financed emissions might rise in the short term, even where the project is expected to deliver economy-wide emissions reductions over its life. 

The FCA's response is that the anti-greenwashing rule does not prevent firms from financing such solutions. Provided sustainability claims are fair, clear, and not misleading, and reflect the full context of a product or service including lifecycle impacts, firms are not prevented from financing capital-intensive transition activities. The FCA provides examples in the report of how banks and asset owners might communicate this financing in practice. 

More broadly, the FCA has emphasised that where labels are applied to financial products, it is important that those labels are clear and that any sustainability claims are transparent and contextual. 

The FCA has indicated that it will continue to engage with firms and industry associations to support greater clarity and shared understanding in this area, and firms with continuing concerns about greenwashing risk in this context are encouraged to engage with the regulator.

For more information on the FCA’s existing rules on the use of sustainability labels and the anti-greenwashing rue, see our Quick Guide.

What is being done

The report is broadly optimistic about the breadth of initiatives already underway:

• GFI Transition Finance Lab: Building on the Pilot's findings and the recommendations of the Transition Finance Market Review, the GFI is launching a Transition Finance Lab to facilitate connections across public finance institutions, government departments (notably the Department for Energy Security and Net Zero), catapults, and private sector partners, and to offer financial advisory to project sponsors working towards first-of-a-kind transactions.

• Strengthening public finance: Reforms including expanding the British Business Bank's total financial capacity to £25.6 billion and the transformation of the UK Infrastructure Bank into the £27.8bn National Wealth Fund, with a targeted 1:3 private finance mobilisation ratio, alongside Great British Energy aim to deploy catalytic capital that de-risks early-stage projects and crowds in private investment.

• Unlocking institutional capital: The Mansion House Accord, the Matching Adjustment Investment Accelerator, and the Pension Schemes Act 2026 are all aimed at channelling long-term institutional capital into productive assets including climate solutions. The FCA report noted that capital requirements can influence climate solutions financing decisions, with prudential frameworks requiring institutions to hold capital in proportion to assessed risk, making financing growth companies difficult where developers lack established trading history.

• Improving information flows: The Public Investment Roundtable is working to embed a “no wrong door” approach across public finance institutions, the NISTA infrastructure pipeline and the Investor Prospectus provide capital providers with better forward visibility of opportunities.

• Transition finance metrics: The FCA and PRA’s Climate Financial Risk Forum ("CFRF") has launched a Transition Finance Metrics Working Group to develop practical, forward-looking transition metrics to help firms assess risks and opportunities with greater confidence.

What does this mean for capital providers, climate solutions companies, and insurers?

For capital providers and insurers, the FCA is calling on firms to share evidence on transaction-level challenges and data gaps, contribute market insights to policy development and the design of public finance interventions, including through the Transition Finance Council, and engage proactively with emerging climate solutions technologies to understand their risks, opportunities, and commercial models. 

For climate solutions companies, the FCA report encourages proactive engagement with the government and public finance institutions through sector bodies, participation in pipeline-building initiatives such as the Net Zero Council's sector transition planning work and the new Transition Finance Lab, and use of the growing range of resources to strengthen financing proposals.

For insurers specifically, the FCA report highlights that insurance solutions can play a role in supporting transaction structuring, including providing risk transfer and structuring tools that improve the investment potential of climate solutions projects.

For more information on transition finance and transition plans, see our collection of materials.