Speaker: Alicia Kedzierski, head of department, sustainable finance division
Event: Loan Market Association's Sustainable Finance Conference
Delivered: 5 November 2025
Key messages
- Banks and other lenders play a vital role in financing the transition to a lower carbon economy. The UK has a big opportunity to be a global leader through raising standards and product innovation.
- The FCA has seen improvements in the sustainability-linked loans (SLL) market.
- Cases where borrowers miss targets in SLLs should not be seen as failure by default. If the targets are ambitious, then missing them and incurring a higher cost of capital is a sign the product is working.
- It is important to be clear what is meant by the term 'transition finance' and also that transition finance products do not overlap or compete with other product categories.
Introduction
Thank you for inviting the FCA to speak at this conference. It is a delight to see so many people, and I think this demonstrates that sustainability has not taken a back seat and is still an important part of your strategies. Both in terms of developing resilience to climate risks, as well as capitalising on opportunities.
Today I would like to reflect on raising standards in sustainable lending. What I have seen as a regulator gives me hope that there is plenty of opportunity for both innovation and growth in sustainable finance.
The loan market’s fundamental role
My teams and I regularly speak with stakeholders including banks, asset managers, asset owners, ratings providers, listed companies, small and medium enterprises (SMEs), as well as other international stakeholders.
In those conversations, I repeatedly hear stakeholders say that the loan market is critical to businesses seeking to decarbonise or to develop green technologies. And I am hearing this about all segments of the economy, from large-cap borrowers to small startups. This is why we have continued to engage with banks on not just specific product markets, but also on their wider sustainability strategies for supporting their clients on their respective sustainability objectives.
The loan market provides not just the building blocks for businesses across the country but is also fertile ground for innovation and new product-types, as the LMA’s work on Transition Loans demonstrates. Raising standards – as we see in the loan market – can take the form of product innovation. I hope the market has received the Transition Loan Principles favourably, and that you’ve had a lot of positive feedback from lenders and borrowers so far.
Clearer product categories can help deepen trust in the market, while attracting growth to market actors who demonstrate high standards. These outcomes support the priorities set out in the FCA’s new 5-year Strategy.
Speaking of standards being raised, let me reflect on another piece of work that gives me cause for optimism.
Observations of the sustainability-linked loans market
The FCA published a letter in August this year reflecting our observations of the sustainability-linked loan or ‘SLL’ market. It followed on from our original SLL letter sent in 2023.
We found that the market in 2025 has improved since our 2023 review, not just in the quality of products offered by lenders, but also in banks’ internal governance and post-transaction monitoring processes.
What we were most struck by in our engagement with market participants over the past year, was that even when borrowers did not meet some key performance indicators (KPIs), many were still refinancing with a sustainability-linked structure. This demonstrates SLLs working well, with borrowers using them to stretch themselves, and holding themselves accountable to meeting those ambitious targets.
We should remember that not meeting targets should not by default be seen as failure, if the targets that are set are ambitious. Instead, it’s important to understand the reasons why the targets were not met. Borrowers may have missed by a fraction or there may have been factors outside of their control. This may be where the rachet kicks in, and – if anything – is a sign of the product functioning as it should, as targets are used to determine the interest rate.
I would also like to take the opportunity to ask the market to support wider initiatives that shed light on what 'ambition' looks like for borrowers. Often this is determined on a case-by-case basis. From our engagement with banks, we know that some of you already monitor KPI trends internally. And I know the LMA is considering a market survey of lenders on what their KPIs are in certain sectors, how often they are met, and how they might calibrate ambition with their borrowers. Having a market-wide picture of the high-level data would help raise standards further in the SLL market.
What does 'transition finance' mean?
When we talk about how labelled loans such as SLLs can form part of a lender’s transition finance toolkit, we tend to assume we are on the same page on what 'transition finance' means. However, I’ve noticed that people refer to different things when they speak of transition finance. On one hand some refer to the decarbonisation of existing assets. On the other, some might be talking about innovative climate solutions that can help the wider economy decarbonise.
The barriers to scaling these 2 market segments are vastly different, and we recognise that participants in one part of the market may be very different from those in the other part. In the former interpretation of transition finance, the focus is on financing companies that are seeking to shift their own business models towards a more sustainable path. This form of financing seeks to support company targets and strategies – and can be seen as an enhancement of existing financing facilities.
In the latter interpretation, it is about getting capital into projects that may not themselves be high emitting, but which have the potential to contribute to the transition more broadly. These assets may be underfinanced due to the perception of risk associated with these technologies. Both market segments – you’ll be unsurprised to hear – are important for the UK’s journey to net zero.
This is why, if applying a label to products, it is important to be clear about what those labels mean. It’s also important that those categories do not overlap or compete with each other. This is what we are hoping to foster through our engagements with firms, industry associations like the LMA, as well as the Transition Finance Council.
We see developments in the transition finance market as a big opportunity, one which supports growth and places the UK as a global leader. This requires not only innovation and higher standards but also bringing together the best elements of what many in the market are already doing. Neither Apple nor Samsung invented the smartphone, what made them successful is their ability to take the best features of their peers and fuse them into something great.
The importance of the international perspective
International perspectives are important as well, as coherence in the market requires investment and work across jurisdictions. Importantly, transition finance cannot happen if emerging and developing markets are not involved in the conversation. Many banks here will have large cross-border operations, and it is important that you are engaged in the process of growing alignment across markets.
As we approach the United Nations Climate Change Conference (COP30) and head into 2026, I would like to reiterate the FCA’s commitment to continuing our collaborative dialogue with industry. And to fostering higher standards through engagement. Through collaboration, innovation, and smart regulation, we can build a financial system that is resilient and fit for the future.
The loan market has the tools, the innovation, and I believe it has the ambition. Now is the time to put all these together for the UK to – as the Chancellor said in her Mansion House speech in July – capitalise on the £200 billion opportunity of the global transition to net zero. And, to position the UK as the world's sustainable finance centre.
