In its recent report, the Transition Finance Market Review outlines recommendations for scaling the market for transition finance in the UK and across the globe. It recognises the potential obstacles faced in our transition to net zero, pointing to technological limitations, political resistance, inertia and financial constraints.
The review also looks at initiatives that are instrumental in our transition to net zero, with project Perseus being one of these. Perseus aims to lead the market down a path of enhanced data access, streamlined reporting and improved compliance with standards. By ensuring that quality data on SME emissions is readily available, Perseus seeks to address a critical gap and remove one of the many obstacles we face on the path to a low-carbon economy.
Financial flows
Spotlighted in the review is the UK’s strength in sustainable finance and its ability to accelerate our path towards a low-carbon economy. Despite this, the trajectory of transition finance towards our net zero future is being held back by high emitting sectors like heavy industry and agriculture, both of which face a significant investment gap.
And, while private capital is seen as a key catalyst for transition, real economic policy and public finance will be required, providing the market with confidence, mitigating risk, and allowing private finance to flow. As the report echoes, “Finance will ultimately flow to where markets believe there is future profitability”.
Data to unlock transition finance
Data – underpinned by assurance and verification – is set to play a central role in our transition plans, particularly when informing financial decisions. The report points out that the past five years have seen an increasing focus on bringing the right data and disclosure to the market. This, for the time being, has been centred around securing information from large companies. In the UK, for example, mandatory TCFD*-aligned disclosures apply primarily to listed companies and large private businesses.
And, while some smaller businesses have started to adopt disclosures voluntarily, a substantial data gap persists for SMEs, who often form the backbone of larger companies’ supply chains. The importance of measuring SME emissions should not be understated, considering they account for around half of the UK’s private sector turnover and business emissions. And yet, the review notes that a coherent, ambitious and forward-looking strategy for addressing issues related to SME data provision and access is currently lacking from the UK Government’s framework: “So far, there has been generally limited focus on how to support and encourage SMEs to develop transition strategies and disclose information in a structured way.”
Project Perseus
Icebreaker One has long recognised the burdensome process of carbon reporting that SMEs face as well as their integral role in our transition to net zero. Through one of our flagship projects, Perseus, we will help unlock access to finance that reduces emissions faster. We aim to do this by automating sustainability reporting for every SME business in the UK.
By automating primary data access we will ease the challenge small businesses face in finding and sharing the data they need to produce sustainability reports. This allows banks, for whom better data means lower risk, to offer SME clients favourable conditions, providing an incentive for SMEs to report their emissions.
“Perseus has the potential to provide personalised net zero recommendations for SMEs and match these recommendations with financial products to increase access to transition finance. SME participation is secured through engagement with existing suppliers (banks and accounting solutions), and data sharing permission is managed in a manner similar to open banking.”
*The Financial Stability Board has announced that the work of the TCFD has been completed, with the ISSB Standards marking the ‘culmination of the work of the TCFD’.