Market map: Transition finance & credible pathways — the categories that will matter next

Global energy transition investment reached a record $2.3 trillion in 2025, representing an 8% increase year-over-year according to BloombergNEF, while energy transition debt issuance surged 17% to $1.2 trillion. Yet despite these headline figures, a fundamental tension persists: the gap between announced net-zero commitments and the capital actually deployed toward credible decarbonization pathways remains stark. The International Energy Agency estimates that annual clean energy investment must reach $4.5 trillion by 2030 to align with 1.5°C targets—nearly double current levels. This creates both an imperative and an opportunity for investors who can distinguish genuine transition strategies from "measurement theater."

Why It Matters

Transition finance has emerged as the critical bridge between pure "green" investments and the hard-to-abate sectors that account for approximately 30% of global emissions. Unlike green bonds that fund already-sustainable activities, transition finance supports high-emitting companies—steel manufacturers, cement producers, airlines, and shipping firms—on credible pathways toward decarbonization (IEA, 2025).

The stakes extend beyond environmental outcomes. Research from the Principles for Responsible Banking (PRB) signatories demonstrates that 61% of financial institutions leading in sustainability risk management benefit from approximately 1% lower capital costs. Standard Chartered has committed $300 billion in green and transition finance by 2030, while Brookfield closed a record $20 billion transition fund in October 2025—the largest private transition vehicle ever raised.

For UK-focused investors, the regulatory landscape is accelerating. The Financial Conduct Authority mandates transition plan disclosures for listed companies and FCA-regulated asset owners for accounting periods beginning January 1, 2025, with first reports expected in 2026. The UK Transition Finance Council (TFC), co-founded by the UK Government and City of London Corporation in February 2025, is developing global transition finance guidelines that will shape capital allocation for years to come.

The commercial imperative is equally compelling. McKinsey estimates £1 trillion in UK business opportunities by 2030 from the transition, while Citi calculates that aviation, shipping, road freight, steel, and cement sectors alone require $1.6 trillion annually to decarbonize at the pace needed for Paris alignment.

Key Concepts

Transition Plans vs. Green Finance

A transition plan is a time-bound strategy outlining how an organization will pivot its assets, operations, and business model toward a low-carbon economy. Unlike green finance that funds already-sustainable activities (wind farms, solar installations), transition finance supports entities currently generating significant emissions but demonstrating credible pathways to decarbonization.

The UK Transition Plan Taskforce (TPT) Disclosure Framework, published in October 2023 and now managed by the IFRS Foundation, establishes three guiding principles: Ambition (clear climate goals), Action (concrete implementation steps), and Accountability (governance and tracking mechanisms). These principles manifest across five disclosure elements: Foundations, Implementation Strategy, Engagement Strategy, Metrics & Targets, and Governance.

Credibility Assessment Criteria

Not all transition claims are equal. The OECD Guidance on Transition Finance (2022) and subsequent ICMA Climate Transition Bond Guidelines (October 2025) establish credibility criteria including:

Paris Alignment: Targets must align with 1.5-2°C pathways with sector-specific trajectories
Carbon Lock-in Avoidance: No financing of long-term fossil fuel infrastructure
Science-Based Targets: Use of validated methodologies (SBTi, Transition Pathway Initiative)
Do No Significant Harm (DNSH): Environmental safeguards across all activities
Short-to-Medium Term Focus: 5-10 year horizons with interim milestones

Transition Finance KPIs by Sector

Sector	Primary KPI	Target Range (2030)	Data Source
Steel	tCO2e per tonne steel	<1.2 (from 1.85 baseline)	SBTi Sectoral Pathway
Cement	tCO2e per tonne cement	<0.52 (from 0.62 baseline)	TPI Benchmark
Aviation	gCO2/RPK (per revenue passenger km)	<60 (from 90 baseline)	ICAO CORSIA
Shipping	gCO2/tonne-nautical mile	<8.5 (from 11 baseline)	IMO GHG Strategy
Power Generation	gCO2/kWh	<100 (from 450+ coal baseline)	IEA Net Zero Scenario
Buildings	kgCO2/m²/year	<15 (new), <30 (retrofit)	CRREM Pathway

What's Working and What Isn't

What's Working

Framework Convergence: The proliferation of competing standards is finally consolidating. The IFRS Foundation's June 2025 guidance on transition plan disclosures under IFRS S2, combined with the LMA/APLMA/LSTA Guide to Transition Loans (October 2025), provides harmonized frameworks that reduce compliance fragmentation. Over 12,000 companies now report transition-related data through CDP, creating unprecedented transparency.

Financed Emissions Measurement: The Partnership for Carbon Accounting Financials (PCAF) methodology has achieved broad adoption, with over 450 financial institutions representing $130 trillion in assets now measuring financed emissions. This enables portfolio-level transition assessment rather than deal-by-deal analysis.

Blended Finance Structures: Development finance institutions are successfully de-risking transition investments in emerging markets. The Just Energy Transition Partnerships (JETPs) in South Africa, Indonesia, and Vietnam demonstrate scalable models for combining concessional and commercial capital, with South Africa's $8.5 billion JETP mobilizing significant private investment for coal transition.

Sector-Specific Guidance: The TPT's sector summaries for 30 industries—including detailed guidance for electric utilities, metals and mining, and oil and gas—provide actionable templates that reduce the "blank page" problem for corporate sustainability teams.

What's Not Working

Greenwashing Persistence: Despite improved frameworks, "transition-washing" remains endemic. A 2024 InfluenceMap analysis found that 58% of transition plans from major oil and gas companies lacked credible pathways to Paris alignment, relying instead on unproven carbon capture at scale or optimistic demand assumptions.

Scope 3 Data Quality: While Scope 1 and 2 emissions are increasingly reliable, Scope 3 (value chain) emissions—often 70-90% of total footprint in sectors like automotive and consumer goods—remain heavily estimated. The lack of primary supplier data forces reliance on industry averages, undermining portfolio construction precision.

Interconnection Bottlenecks: Physical constraints, not capital, increasingly limit transition pace. Grid interconnection queues in the US exceed 2,000 GW of backlogged projects, with average wait times stretching to 5+ years. Financing solar projects matters little if they cannot connect to transmission infrastructure.

Additionality Challenges: Many transition finance instruments struggle to demonstrate additionality—whether the capital genuinely accelerated decarbonization versus funding activities that would have occurred anyway. This is particularly acute for sustainability-linked bonds with insufficiently ambitious KPIs.

Key Players

Established Leaders

HSBC: The bank has positioned itself as a transition finance leader, committing $750 billion to $1 trillion in sustainable financing and investment by 2030. Its dedicated Transition Finance team provides sector-specific advisory services and has structured landmark transactions including the first Asia-based transition bond.

Standard Chartered: With $300 billion committed to green and transition finance by 2030, Standard Chartered specializes in emerging market transition financing across Asia, Africa, and the Middle East. Its Transition Finance Framework includes rigorous credibility assessment criteria aligned with ICMA and LMA guidelines.

BlackRock: As the world's largest asset manager, BlackRock's Transition Capital strategy manages significant assets focused on companies with credible decarbonization pathways. Its proprietary Transition Readiness scores assess 13,000+ companies on strategy, business model, and capital allocation alignment.

Brookfield Asset Management: The October 2025 close of Brookfield's $20 billion Global Transition Fund II represents the largest private transition investment vehicle globally. The fund targets operational improvements in carbon-intensive assets, with a thesis that value creation and decarbonization are complementary.

Emerging Startups

Watershed: Valued at $1.8 billion following its February 2024 Series C, Watershed provides enterprise carbon management software to companies including Airbnb, Stripe, and BlackRock. Its Climate Action Manager enables scenario planning for transition strategies, while its acquisition of VitalMetrics provides granular emissions factor data.

Persefoni: With $187 million raised and clients including Citi and four of the top ten private equity firms, Persefoni specializes in carbon accounting for financial institutions. Its PCAF-aligned platform calculates financed emissions across asset classes, essential for portfolio-level transition assessment.

Sweep: The Paris-based startup raised $100 million from Coatue and others to provide collaborative carbon management software. Its emphasis on team workflows and CSRD compliance positions it well for European mid-market companies navigating mandatory disclosure requirements.

Key Investors & Funders

Breakthrough Energy Ventures: Bill Gates' climate fund has deployed over $2 billion across the climate technology spectrum, with significant allocations to hard-to-abate sector solutions including sustainable aviation fuel, green steel, and industrial heat electrification.

TPG Rise Climate: The $7.3 billion climate fund co-managed with former US Treasury Secretary Hank Paulson invests in companies driving the climate transition, with a mandate spanning renewable energy, sustainable agriculture, and industrial decarbonization.

UK Infrastructure Bank: Capitalized at £22 billion, the UKIB focuses on accelerating UK infrastructure investment with net-zero alignment. Its mandate explicitly includes transition financing for heavy industry and energy-intensive manufacturing.

Examples

ArcelorMittal's Transition Bond: In 2024, the world's second-largest steelmaker issued a €500 million transition bond to fund green steel production at its Hamburg facility. The bond, structured under ICMA guidelines, finances hydrogen-based direct reduced iron (DRI) technology that reduces CO2 emissions by 95% compared to traditional blast furnace production. Third-party verification by DNV confirmed alignment with SBTi's 1.5°C steel sector pathway, with interim targets requiring 30% emissions intensity reduction by 2030.
Heathrow Airport Holdings Sustainability-Linked Loan: Heathrow secured a £1.2 billion sustainability-linked loan in 2024 tied to Scope 1 and 2 emissions reductions and sustainable aviation fuel (SAF) adoption targets. The facility includes margin ratchets that reduce borrowing costs by 5 basis points upon achieving annual KPIs, with independent verification by EY. The structure demonstrates how aviation—among the hardest sectors to abate—can access transition finance with credible, measurable commitments.
South Africa Just Energy Transition Partnership (JETP): The $8.5 billion partnership between South Africa and international partners (France, Germany, UK, US, EU) represents the largest emerging market transition finance package to date. Funding supports Eskom's coal plant decommissioning, renewable energy buildout, and workforce reskilling in affected communities. While implementation has faced challenges—including regulatory hurdles and local content requirements—the JETP model has been replicated in Indonesia ($20 billion) and Vietnam ($15.5 billion), demonstrating scalable frameworks for sovereign-level transition finance.

Action Checklist

Conduct portfolio transition readiness assessment: Map holdings against sector-specific pathways (SBTi, TPI) to identify assets requiring engagement, divestment, or transition support
Implement PCAF-aligned financed emissions measurement: Establish baseline across asset classes; prioritize data quality improvement for highest-emission holdings
Develop sector-specific credibility criteria: Customize due diligence frameworks for hard-to-abate sectors (steel, cement, aviation, shipping) aligned with ICMA CTB Guidelines
Engage portfolio companies on TPT Disclosure Framework compliance: Use the five-element structure (Foundations, Implementation, Engagement, Metrics, Governance) as engagement template
Establish transition finance allocation targets: Define portfolio-level commitments with clear additionality requirements and progress reporting mechanisms
Build emerging market transition pipeline: Partner with DFIs and blended finance structures to access JETP-adjacent opportunities with appropriate risk-return profiles

FAQ

Q: How does transition finance differ from green finance? A: Green finance funds already-sustainable activities (renewable energy, energy efficiency), while transition finance supports high-emitting entities on credible decarbonization pathways. The distinction matters because green finance alone cannot decarbonize sectors like steel, cement, and aviation that require continued operation during transformation. Transition finance acknowledges that some sectors need interim financing to build low-carbon capacity before emissions can be eliminated.

Q: What makes a transition plan credible rather than greenwashing? A: Credible transition plans demonstrate five key elements: alignment with 1.5°C pathways using sector-specific trajectories; avoidance of carbon lock-in through long-term fossil infrastructure; science-based interim targets (typically 5-10 year horizons); transparent governance with board accountability; and third-party verification. The TPT Disclosure Framework and ICMA CTB Guidelines provide detailed criteria. Red flags include over-reliance on unproven carbon capture, absence of interim milestones, and lack of capital expenditure alignment with stated ambitions.

Q: How should investors assess Scope 3 emissions given data quality challenges? A: Acknowledge limitations while maintaining engagement. Use PCAF data quality scores (1-5 scale) to flag estimation-heavy portfolios requiring improvement. Prioritize primary data collection for material holdings through supplier engagement programs. Consider sector-specific Scope 3 proxies (e.g., fuel efficiency for transport, materials intensity for manufacturing) that may be more reliable than aggregate estimates. The Watershed and Persefoni platforms now integrate supply chain surveys that improve data quality over time.

Q: What role do development finance institutions play in transition finance? A: DFIs provide concessional capital that de-risks commercial investment in emerging markets, where 50%+ of future transition investment must flow. Instruments include first-loss tranches, guarantees, and technical assistance facilities. The JETP model demonstrates how DFI coordination can mobilize private capital at scale. For institutional investors, DFI-sponsored facilities offer emerging market transition exposure with appropriate risk mitigation, often structured through blended finance vehicles with multiple risk layers.

Q: How will the UK's transition plan disclosure requirements affect investment mandates? A: FCA rules require listed companies, asset managers, and FCA-regulated asset owners to disclose transition plans (or explain absence) for accounting periods beginning January 1, 2025. First reports will appear in 2026 filings. For asset managers, this creates both compliance obligations (disclosing fund-level transition alignment) and opportunities (accessing standardized issuer transition data for security selection). Mandates should anticipate increased transition plan disclosure in investment policies, with engagement frameworks tied to TPT Disclosure Framework elements.

Sources

BloombergNEF (2026). Energy Transition Investment Trends 2026. Available at: https://about.bnef.com/insights/clean-energy/
International Energy Agency (2025). Scaling Up Transition Finance. Available at: https://www.iea.org/reports/scaling-up-transition-finance
IFRS Foundation (2025). Disclosing information about an entity's climate-related transition, including information about transition plans, in accordance with IFRS S2. Available at: https://www.ifrs.org/content/dam/ifrs/supporting-implementation/ifrs-s2/transition-plan-disclosure-s2.pdf
Transition Plan Taskforce (2023). TPT Disclosure Framework. Available at: https://www.ifrs.org/content/dam/ifrs/knowledge-hub/resources/tpt/disclosure-framework-oct-2023.pdf
OECD (2022). OECD Guidance on Transition Finance. Available at: https://www.oecd.org/en/publications/oecd-guidance-on-transition-finance_7c68a1ee-en.html
Climate Policy Initiative (2025). Global Landscape of Energy Transition Finance 2025. Available at: https://www.climatepolicyinitiative.org/publication/global-landscape-of-energy-transition-finance-2025/
CDP (2024). From Plans to Capital: Unlocking Credible Transition Finance at Scale. Available at: https://www.cdp.net/en/insights/from-plans-to-capital
ICMA (2025). Climate Transition Bond Guidelines. Available at: https://www.icmagroup.org