Environmental Audit Committee
Oral evidence: HM Treasury and the economics of climate and nature, HC 23
Wednesday 15 July 2026
Ordered by the House of Commons to be published on 15 July 2026.
Members present: Mr Toby Perkins (Chair); Olivia Blake; Julia Buckley; Jonathan Davies; Barry Gardiner; Alison Griffiths; Chris Hinchliff; Sojan Joseph; Manuela Perteghella; Martin Rhodes; Sammy Wilson.
Questions 88 - 101
Witnesses
II: The Rt Hon The Lord Sharma KCMG, Chair, Transition Finance Council; and Jennifer Wu, Head of Secretariat, Transition Finance Council, and Head of Sustainable Finance Innovation, City of London Corporation.
Witnesses: The Rt Hon The Lord Sharma KCMG and Jennifer Wu.
Q88 Chair: Welcome to the second of our three panel events today. We are delighted to have with us Jennifer Wu and Lord Sharma—welcome back, Lord Sharma, and welcome, Ms Wu. Could I invite you to introduce yourselves and the organisations that you are representing, starting with you, Ms Wu?
Jennifer Wu: My name is Jennifer Wu. Thank you for having me today. I currently work at the City of London Corporation as the Head of Sustainable Finance Innovation. I also have the role as the Head of Secretariat for the Transition Finance Council. I come with 24 years of private sector experience across asset management, development finance, and investment banking.
Lord Sharma: I chair the Transition Finance Council. I have been doing that since the start of spring 2025. I sit in the Lords and was previously of your parish.
Chair: Indeed. Very good; welcome back.
Q89 Martin Rhodes: What is your assessment of the Treasury’s approach to transition finance? Do you think that it has a coherent approach to it? I will start with you, Ms Wu.
Jennifer Wu: Thank you very much for the question. We have been very fortunate to be asked by Treasury to help provide support and resources to the transition finance market review, which started back in 2023. One of the recommendations from the review was to set up a Transition Finance Council to carry on the work.
There were a number of recommendations that were published as part of the review. What the council has been doing over the course of the last year, since Lord Sharma has taken over as the chair, is to implement on some of those recommendations, making sure that we still bring a group of private sector participants together and ensuring that we are focusing on specific issues to mobilise private finance.
Separately, we have also received support from Treasury not only at that policy level, but at working group level. The civil servants in Treasury have been working quite closely with us throughout this whole period by participating in the strategic steering group meetings as well as the working group sessions, providing us with informal feedback on a lot of the publications that we published in March. The interaction with the Treasury at the Minister level and at the working level has been quite close. It has been clear as to what it would like to see from the City of London’s standpoint in our support to the council.
Where we are at now—I am sure Lord Sharma will talk about this a lot more—is that as we are entering into the final year of the council, a lot of our focus is around action. What we hear from the private sector as well is that we need a strong policy signal from Treasury. We have lots of frameworks, we have lots of guidelines, but we need a market signal to help a lot of the private sector participants get comfortable in investing in a lot of these first-of-kind projects in the hard-to-abate sector especially.
Lord Sharma: To add to that, the Treasury understands that the ability to raise transition finance is very important. The Treasury absolutely wants London to be the place that we do it for UK needs and for international needs. It set up the transition finance market review.
One or two reflections on that is that when the Transition Finance Council was set up, one of the things that I was surprised at was that there was no formal response to the comprehensive transition finance market review—it was very comprehensive; I am sure that the Committee will have gone through it. Certainly from the time when I was in government, I would have expected that there would be a formal response. I was told at the time that there was not a formal response, but the answer was to set up the Transition Finance Council, which was one of the key recommendations.
I then subsequently wrote to the Chancellor in the middle of last year, ahead of the publication of the financial services growth and competitiveness strategy, outlining some of the key items that we thought should be in that strategy. There were two key asks in that in relation to the transition finance market review. One was for the strategy to explicitly say that it would look to adopt the recommendations.
Secondly, one of the key recommendations was to set up a transition finance lab. Moving from all the policy discussions and getting the frameworks in place is great, but then it is about asking how you trigger finance to flow. That means that you need new innovative products and all the rest of it. That did not happen. It is happening—the GFI, who you may have in as part of these sessions as well, is doing something—on a voluntary basis. Working with the Ministers has been great, although we are now on our third Minister, and I would say overall that the Treasury absolutely gets it, but we have to move from understanding the problem to executing and ensuring that we are seeing a real flow of transition finance in the market.
Q90 Martin Rhodes: Am I right that what you are both saying is that there has been a level of engagement from the Treasury in the process, but what is lacking is an overall strategic sense of direction and support and where the Treasury wants to go with this? Is that what is lacking?
Lord Sharma: We have taken it upon ourselves to provide some of the answers to that. We have set out four policy asks; we did a big, big document and we can go through the details of what those policy asks were. Those policy asks, if they are delivered, will lead to either new market instruments being set up to allow the delivery of transition finance or make it easier for transition finance to be delivered because there will be Government guarantees backing some of the private money. We need some of that to be executed.
One of the other things that I have pushed for—and there has been a bit of reluctance—is for the UK to think about at least launching a sovereign transition finance bond. That is important because it is a big market signal. I remember when I was in government and we had this discussion ahead of COP26 about whether we should or should not launch a green gilts programme, and we did.
This comes down to political leadership; this is not just about senior officials in the Treasury. If Ministers say that they want this to happen, it will happen. We did manage to get green gilts launched in September 2021, and up until now that programme is still running, with over £50 billion raised so far for the UK. That is what I am talking about, where you need to have some flagship thing that you are doing that you can point towards, rather than just a whole bunch of reports and guidelines. They are great and are needed, but I do not think that that is enough.
Q91 Martin Rhodes: Is it fair to say that the Treasury has said, “Let’s have the review,” and then one thing that has come out is to set up the council, but then essentially you feel that it has passed to the council, almost, the responsibility for that strategic approach rather than leading it itself?
Lord Sharma: I do not think that that is entirely fair, and if I put it like that, that is not appropriate. If you look at the big four policy asks that we have made, to be fair the Treasury officials have been involved in coming up with those as well. There has been a great deal of interaction, but what I am saying now is, “That is great. You have the tools available. Let’s try to build those tools in. Let’s try to execute this thing.”
Q92 Martin Rhodes: So rather than a lack of strategy or strategic thought, the issue is more about execution. You have both mentioned market signals. Coming back to you, Ms Wu, what does the City of London, the financial sector, need in order to feel as if it has that support and confidence?
Jennifer Wu: We put out four specific policy recommendations at the end of March. This is a continuation of work from the transition finance market review as well. The four were picked by industry, and there are critical barriers that, if we remove them, can send the right signals.
The first one is clarifying fiduciary duty to unlock our pension pools to invest in transition opportunities and give them confidence and clarity to be able to do that. I know that there are lots of emotions already around the Pension Schemes Act and all of that. We want to see policy certainty that this will get carried through, such that our pension funds can have the confidence to invest in this space.
The second piece is promoting transition labelled products innovation, to Lord Sharma’s point. You probably also see in the market that more and more banks and financial institutions are looking into potentially issuing transition bonds, especially on the back of the launch of the transition category by the likes of ICMA and LMA, the standard setters, defining what a transition bond looks like. However, as I said earlier, some of the technologies that these bonds will get invested in, or that proceeds will be used to invest in, are first-of-kind technologies. You do need Governments to come in to potentially provide a guarantee or participate to de-risk that.
That links to the other recommendation that we have, to continue and expand the guarantees programme that the different public institutions already have, to include the likes of transition finance in the design phase. One example that we talked about is long-duration energy storage, which is critical and is part of the mandate of the National Wealth Fund for the AI growth strategy as part of its guarantee programme. The reality is that long-duration energy storage is also critical for the hard-to-abate sector to decarbonise. Therefore, there are many things that do not necessarily just help one particular pro-growth strategy. The consideration for transition finance can be also integrated into that. Expanding the definition will also help.
The final recommendation that we put forth is making sure that there is a co-creation process as the likes of the Net Zero Council, for instance, go through and develop sectoral transition pathways, such that you do not just have a sectoral pathway with the policies that need to be in place as well as the technology road maps, but how to finance that. At what stage will public finance be part of it? Will there be a guarantee? How do we de-risk that—equity, fixed income? That is something that will help the private sector.
As part of the Transition Finance Council in the last year, we have devoted an entire working group just to developing a prototype as to how that can be done. We did one for long-duration energy storage. We also developed a template on how the financing plan can be designed for each of the sectoral pathways. These are the things that we would love to see being carried through, even after the council is dissolved.
Q93 Martin Rhodes: Finally, on the various actions that you are talking about, it is about creating more policy certainty so that investors are willing to invest. It is through all these different mechanisms and executing those that you think you will then create the level of certainty around policy that gets you that level of investment you want.
Jennifer Wu: That is correct.
Lord Sharma: Yes, absolutely. We have these draft guidelines, which is the framework to allow companies that are in hard-to-abate sectors to raise finance and to do that in a credible way. Then you have the instruments that we are talking about that would allow you to do the raising of the finance.
Q94 Julia Buckley: You have been pretty clear about some additional actions that are either in progress or coming soon that will hopefully start to allow that investment to flow more than it has so far. Ms Wu, you also touched on the current model, and crowding it into the idea that instead of the Government co-financing and match-funding all investment in this area, they should shift to something more like the American model of offering funding for innovation and the leading aspects, in the hope that the market will then follow. Is that working effectively? Is that moving in the right direction? Is there any evidence that that is the right direction to move the financing model?
Jennifer Wu: Thank you for that question. We do have the National Wealth Fund as an observer on our strategic steering group for the Transition Finance Council. It has kindly provided its strategy and mandate to us on a regular basis so that we know what it is looking at. For transition finance, the different technology that is needed, be it for the hard-to-abate sector or some of the other areas, is being thought through as part of its guarantee design.
AI, the example that I just gave, is a good one: the technologies that it is looking to finance—not under the transition finance strategy banner, but for some other growth strategy—have elements that can be extended to transition finance. If they were able to design—I am not just pointing at the National Wealth Fund, but any public finance institutions—and embed the concept of transition finance into the design of all of their guarantee programmes or public-private partnership programmes, that could create a multiplying effect as well, and send a strong signal to the market.
Lord Sharma: You can see the multiplying effect already with the National Wealth Fund, because it has been providing guarantees.
Q95 Julia Buckley: Are you saying that if you were to embed that as a core principle, that in itself would offer the co-financing that could sit alongside your innovation? That is currently not a requirement, but it is a great recommendation that you are suggesting today.
Jennifer Wu: That is correct.
Julia Buckley: That is very useful for the Committee so that we can pass forward your suggestions.
Lord Sharma: Chair, have you seen—if you have not, we are happy to share with you—the detailed recommendations that we made? It is a proper tome. You can have a look and see whether you think any of it is interesting or not.
Chair: That would be very helpful, thank you.
Q96 Olivia Blake: Thank you both for your answers so far. I want to focus on how transition finance should be embedded within the wider economic and growth strategies that the UK has, and whether you think that it is sitting away from the central components of our long-term economic strategy at the moment. If it is seen as a bit separate, do you have any reflections on that?
Lord Sharma: Looking at this at a very macro level, last year about $2.3 trillion was raised globally for the transition—widely defined—but less than 10% of that money went into hard-to-abate sectors. Therefore, they have not been the sexy bit of where the money has been spent, but if you want to decarbonise economies, you have to deal with them. One of the issues, of course, is the definition of transition finance. We do not have a green taxonomy. That is one of the things that we have tried to address through the guidelines.
The way that you embed this into the UK finance ecosystem is to follow through on the work that we have been doing and the recommendations that we have been making. If I can put this in three pots, first, there is the draft guidelines that we have, which are being tested by private sector institutions in terms of how they allocate money and how those particular decisions are made, and we want to see more of that road-testing going on.
The second bit is looking at the sector plans. Jennifer has talked about some of the work we have done on that. Effectively, a lot of that is being led by the Net Zero Council. The final bit is the products, what we would call the signals to the market in terms of execution.
If all these three things happened, or if we just take the guidelines, for example, they are voluntary, and they are out there. If at the end of this whole process, when those guidelines were finalised, the Government said, “These are now Government guidelines, rather than just another set of guidelines that are sitting out there that you do or do not have to take into account,” that would be great. If we manage to get some of these financial instruments launched, that will make a difference.
I want to go back to this point about innovation, which you raised as well. The reason that there was a recommendation initially in the original review on having a transition finance lab was basically to test products as well and to see what is needed, and that helps to provide the innovation.
There is a parallel example of something that is happening pretty well at the World Bank. Ajay Banga, when he came in, recognised that you needed to scale up the amount of private finance that flows as a result of money that the World Bank is allocating, so he set up a private finance lab. That has come up with a bunch of policies—very concrete things—that, if they are enacted, will help to deliver and corral more private finance. The transition finance lab is now currently being done on a voluntary basis by the Green Finance Institute.
I have no axe to grind here because I am not part of that institution, but I would quite like for the Government to take some co-ownership of that—not just to say that they think that is a good thing to do, but to provide some resource as well.
I just want to be clear on this: on the TFC, we do not get any resource from the Government. The Government very helpfully provide civil servants to interact with, but we are funded through philanthropy and the City of London. I think that if you have a transition finance lab, it does need Government backing and to have one or two people from Government as part of it so that there is a backwards and forwards flow in discussion, in terms of which products work and which products do not work.
Q97 Olivia Blake: That is all very helpful and clear, but that would obviously need resources. What ballpark figures are you thinking would be needed from Government to put behind the lab? In terms of sector plans, is there a particular sector that you think is low-hanging fruit for us to lead with, as an example?
Lord Sharma: When I talk about resources, I am not talking about huge amounts of money. I am talking about having a few people and a bit of financial resource. To put this into context, the Transition Finance Council works on the basis of a grant from CIFF, the Children’s Investment Fund Foundation—I do not know whether we are allowed to say, but the grant is several hundred thousand pounds—and support from the City of London as well.
We are not talking about huge sums of money, but symbolically it makes a huge difference if you also have one or two people from the Treasury embedded in this. That is also a market signal, because the market says, “Oh my God, the Government are really behind this. They are putting people in there.” That is important.
In terms of which sectors, basically that work is being led now by the Net Zero Council. I think they have a plan to roll out a whole bunch of sector plans, but the things that we were talking about when this was still work within TFC was hard-to-abate sectors like cement, steel and so on.
Q98 Olivia Blake: That is useful. Finally, I have a couple of questions about international comparisons, and we highlighted some other avenues that have been explored. Given the nature of politics at the moment and the shift away from consensus, I would say, politically—and you might want to reflect on your previous position on this—do you think that the UK’s global position as a centre for sustainable and transition finance is under threat? Do you think the HMT need to do more to maintain leadership in this space? Do you think the political backdrop is making that more of a challenge?
Lord Sharma: Let me speak, since we are talking Transition Finance Council, a bit more narrowly on this. Yes, of course, you are absolutely right that the political consensus that we have historically had on climate issues is not there—certainly not anywhere near in the way that we had previously. That of course sends wider market signals to potential investors in the UK, and so on.
Looking at this narrowly through the lens of the Transition Finance Council, I think we are at quite a nascent stage. I think we need to get on and do the things that we have got on the agenda, and to get backing and support from Government. To be fair, we have had—and we continue to get—very good interaction with civil servants. We just need that to happen because there are other markets that are nimbler and are moving ahead in this area.
Jennifer, you might want to talk a little about Singapore, but since I mentioned a sovereign bond in the UK, it is worth noting that Japan launched a sovereign transition finance bond—GX bond as they call it—in 2024. The aim is to have a series of these bonds launched, raising up to around $130 billion as part of their transition as well.
I think we need to get on with it. The politics will swirl around but I think in this case we need to focus and deliver on the things that we have said we are going to deliver on. Do you want to comment on Singapore and any of the other markets?
Jennifer Wu: I think transition finance for the private sector is very much about economic efficiency. If you have a hard-to-abate sector, so a cement company in another market, that is able to operate at a more carbon-efficient and cost-efficient standpoint compared with a cement company here, we will lose our competitive advantage. I think that is a very important thing.
Given the fact that a lot of the sectors and countries need to transition to gain energy independence, this is a growth opportunity from a private sector standpoint—to be part of that and finance these potential opportunities. I think these are the two main drivers. Japan is a great example where you have the Government leading this effort, followed by banks and corporates issuing transition bonds. It is a pretty vibrant market. We have a lot of discussions with the Japanese Government.
If you look at Singapore and talk about cost, for example, the issuance of labelled bonds will incur a bit of a cost because a lot of these labelled instruments will require external validation to make sure that they are credible and the green credentials are in line with any standards and frameworks, so the Monetary Authority of Singapore subsidises external validation fees. We are not talking about a lot of money, but that sends very strong signals to especially mid-cap companies; it is not always large-cap companies that need transition funding and a bit of help as they issue these types of bonds. I think that sends a really good signal.
The other thing to note is about having the ability to join policies up—we talked about execution, but also there are many different policies that sit separately. I will give you one example. A transition finance strategy focuses on the investment side of things, but we also have our UK emissions trading scheme. If you look at some other markets—for example, Japan—they use the proceeds from their emissions trading schemes to finance or repay the transition bond, so they are linked.
The EU also basically recycles the revenues that it raises from the emissions trading scheme to reinvest back into transition finance. How you join up all the different policy instruments to make this a revenue opportunity for the country and also industry is important, and that is an opportunity that we have here.
Q99 Olivia Blake: That is an interesting suggestion. In the first example that you gave, what percentage is linked back in? Is it the full amount or a proportion? That might be interesting as a recommendation.
Jennifer Wu: On Singapore?
Olivia Blake: Yes.
Jennifer Wu: I will need to come back to you on that in writing. However, if you look at the EU, for example, 100% of the revenues that they raise from the emissions trading scheme are earmarked for climate decarbonisation and green technology.
Q100 Sammy Wilson: You have spoken about the role that banks play and how you have encouraged banks to think along the lines of what to do to help climate and nature, and so on. There have been a lot of reports recently, of course, that banks are now looking at putting more money into projects that give high returns, and there have been reports in the papers about them going back to financing fossil fuel projects, with billions going into that.
This Committee is especially interested in how finance and private finance can be used to promote nature and restore our natural resources here. What has your experience been with those banks that are committed to helping the transition, promoting the green agenda and promoting nature? Have they been playing a huge role? Has private finance played a huge role in that?
Can you think of any projects that those banks are lending money to? If not, what are the impediments to doing that—especially as the monetary returns for nature-type projects are often seen as much lower, or they are not as apparent, let’s say, than for investment in wind energy or something like that?
Lord Sharma: From a Transition Finance Council perspective, we have not looked at this through a nature lens. I can make a broader comment on this, and then I will ask Jennifer if she wants to comment on this from her previous private sector experience.
My experience with banks is that many of them remain committed to the transition, and I think there are a number of reasons for that—one is to ensure that they do not end up backing stranded assets. There is a gradation in the sense that every bank will have a set of its own policies, in terms of what percentage they are willing to invest over what period of time and in what particular sectors—you mentioned fossil fuels—and how that goes down over time.
If you look at the Transition Finance Council, we have had 80 very senior folks, who work in the City at banks and insurance companies and all the rest of it, involved on a voluntary basis. A lot of the road-testing of the guidelines that is going on is also with financial institutions. Certainly for the banks that I am aware of, I can see the commitment continuing from the financial services sector.
Specifically on nature, from some of the interactions that I have had separate from the Transition Finance Council, there are some banks looking at this; I think Bank of America has. I do not know whether, from a JPMorgan point of view, there is anything that you are aware of, Jennifer, or that they are looking at in terms of nature bonds or nature finance.
Jennifer Wu: Yes, I think nature bonds is definitely an area that has been growing. Another area that financial institutions in the private sector have been focusing on is the voluntary carbon market, on the understanding that corporations or even countries, at some point, will end up with residual emissions that they cannot diversify away.
One of the potential instruments to be utilised by both private and public sector is to offset that with carbon credits generated by nature-based solutions or engineering solutions—removal solutions. The creation of that market is quite critical, because once a credit is created on the back of a forest, or any type of nature-related project, it has a price, and you can have a potential buyer as well. That creates the incentives for potentially more project developers to look at different areas of nature conservation or different types of nature projects that can generate credits, and have the confidence that they will be able to pay for that and have a return and a revenue stream.
The challenge with that market right now is that it is very much what I would call a primary market. You have project developers who work together with banks to get the first loan, so that they can kick-start the projects. It is quite hard for institutional investors, for example, to get access to these project developers unless they know who to call, be it the banks or the project developers themselves.
Also, because it is all over-the-counter types of transactions, pricing is opaque and not transparent. That deters a lot of institutional investors, be it asset managers or pension funds, from getting into that space because once they have these credits, which should be treated as financial assets on their book, they cannot mark to market. They do see the benefit of potentially buying credits, which will help with not only their decarbonisation objectives but financing nature in an effective way, but I think there is a market infrastructure or a marketplace problem that we need to solve to unlock this opportunity—that is, mobilising more finance into the nature project.
Lord Sharma: Do you want to mention the carbon markets work the City of London is going to be undertaking?
Jennifer Wu: Some of the work that we are looking to take on as part of the City of London—and this is separate from the Transition Finance Council—is UK Government have done a lot of work focusing on creating the standards. We were the ones who actually created the standards, which are now being recognised by the United Nations, on integrity principles: what are the types of nature projects, and what criteria do they need to fulfil in order to call this a credible carbon credit. A lot of that work on the supply side is being done. It is not perfect. There is still a lot that needs to be done, but I think the challenge now is on the demand side.
I will just mention some of the issues or the barriers that are stopping demand. One of the things that we are scoping out is in London we trade in everything: commodities, stocks, bonds. We have a very established mainstream financial infrastructure. A credit should be no different from any type of commodity or financial asset, so we want to be able to trade that through our mainstream financial market infrastructure as well, such that we can create a secondary market. The primary market still needs to exist, but you need a liquid, transparent secondary market for this to take place. That may also open up opportunities for project developers to directly list on the secondary market, as opposed to having to find a banker or venture capital firms to finance these types of projects.
I think the benefit of plugging the voluntary carbon market into the mainstream financial infrastructure that we have here in London is a unique opportunity that we have right now. There are other markets—I hate to say this—looking at this right now: Singapore is one, Japan is another. We will not end up being the only global centre doing this, but we cannot miss this opportunity.
Q101 Chair: Thank you very much. Lord Sharma, finally, we all recall your role in COP26 and, as you say, those halcyon days when we had this political consensus and basically the only question was how fast do we get there and by what route. Clearly, as my colleague referred to, that consensus has broken down. On market confidence, the sense that we could change Government and abandon the pathway must affect the long-term investment appetite of people in this sector, mustn’t it?
Lord Sharma: I assume you are talking, Chair, specifically about the UK.
Chair: Yes. Although there are others around the world who are—
Lord Sharma: Sure. If I think back to when I was in government, we managed to raise tens of billions of pounds of private sector money, which went into green technology and the renewables sector—we built the second biggest offshore wind sector in the world. We have this whole discussion around energy security, but frankly, if we had not had the level of renewables that we had in our system when the first energy shock struck in 2022, we would be in a far worse place.
I think one of the reasons that people were willing to invest is because they saw that there was long-term policy certainty going forward. I think you have seen folks like the CBI and others saying more recently that the lack of political consensus makes the private sector question, and puts at risk inward investment and jobs. I think that is the case for any country where there are question marks about what may happen if there are changes of Government.
As a general point, I would say that transition is happening. There is this idea that what happens in one country somehow slows the rest of the world, but it is happening—go out to Asia. We have continuously made reference to the markets that are being really innovative; we have talked about Japan and Singapore. Innovation is going on, and at the end of the day, people do not have to invest in the UK. They can choose to take the money elsewhere. My big concern with all of this is the risk that we lose out on jobs and lose out on investment. From my perspective, that would be unfortunate.
Overall, the transition is happening, and the world is continuing to decarbonise, despite some of the noises that you hear. That will continue.
Chair: I hope that nothing you said there gets you thrown out of any gang; I know that certain people are in a vicious mood at the moment. We thank you very much indeed for that excellent and very clear evidence. Indeed, Ms Wu, you have given us some real food for thought and very useful recommendations going forward. Thank you very much. We will switch to the third panel, but thank you very much indeed for your evidence.