The UK’s Transition Finance Council has confirmed it does not require entities to be aligned to 1.5C in the second iteration of its guidelines on entity-level transition finance.
The body launched a consultation on the first draft of the guidelines in August, aiming to set out basic principles and minimum expectations for company transitions with the aim of creating common minimum expectations for users to “confidently distinguish what is and what is not credible transition finance”. The document is due to be finalised by spring 2026.
A number of changes have been made to the guidance, including a rewrite of the section setting out the definition of a credible pathway. The new version makes it clear that “while alignment to 1.5C is preferred, it is not required”.
“While increasingly challenging to achieve, the Paris Agreement goal of holding global temperature rise to well below 2C and pursuing efforts to limit it to 1.5C remains the appropriate anchor for transition finance,” the guidance says.
It also has also been revised to include more examples of what a credible pathway could be, including those provided by the Science-based Targets initiative and the Transition Pathway Initiative.
However, Nationally Determined Contributions are not included in the definition of a credible pathway due to their varying degrees of scientific basis.
Entity pathways which are not aligned with 1.5C should have transparent rationale and implications “with clear disclosure relating to the level of ambition that this is associated with it and justification of usage”, the guidance now says.
The guidance also sets out a series of “universal factors”. This is a basic checklist of minimum expectations for transition finance, such as quantitative short-term targets covering Scope 1 and 2 emissions and demonstrating that targets are approved by senior decision-makers.
Market participants said there were too many of these factors and that they could set too high a bar for emerging market or smaller entities, according to a summary of consultation responses also published by the council today.
As a result, the council has significantly rewritten the factors to reduce duplication and address challenges in evidencing compliance, although it said that it welcomed further feedback on refining the factors including on breaking them into “essential” and “desired” checks.
Meanwhile, respondents to the consultation backed the approach of not mandating Scope 3 targets, while the council has developed a mapping with IIGCC’s Net Zero Investment Framework and initial commentary on using the guidance alongside frameworks from Asia, both in response to market feedback.
The guidance has now been split in two documents – one containing the guidance and a new implementation handbook containing asset-class specific applications, case studies and interoperability guidance.
The consultation runs until the end of January next year.