Whilst net-zero strategies focus on technical and commercial feasibility, the impacts on workers, contractors, and wider communities often receive less consideration. Investor and stakeholder expectations place renewed responsibility on businesses to integrate social impact assessments into the decarbonization strategies.
The transition to a low-carbon economy is about people: the ones who make the decisions and the ones affected by those decisions. A “just transition” approach (planning for and investing in a transition to a greener economy in a way that is as fair and inclusive as possible to everyone concerned) ensures that the affected people are considered by those making decisions..
According to DNV’s latest Trilemma and Transition: The momentum to break barriers, whilst the energy transition keeps accelerating, a lack of focus on a just transition was named amongst the top 10 risks to near-term success in the energy industry.
The World Benchmarking Alliance (WBA) just transition assessment in 2021 has found that energy and automotive giants ‘fail to ensure just transition for net zero for workers and communities.’ The WBA is currently conducting research to extend this assessment to 450 companies this year. Investor groups are calling on companies in hard-to-abate sectors to assess, prepare for and mitigate the social impacts of their low-carbon strategies.
What are the key levers to assess business strategy on enabling a ‘just transition’?
- Setting standards that integrate decision-making processes with affected stakeholders and populations. It is vital that local community representatives are involved in the decisions that affect them on issues, such as emergency response preparedness, land use and stewardship of shared natural resources, to name a few. Voluntary frameworks, such as the ASI Performance Standard V3 and ICMM Performance Expectations are setting increasing expectations on social responsibility.
- Impact assessments integrating vulnerable / marginalized group’s voices. As independent assessors, DNV helps companies understand their stakeholders’ priorities and expectations. For instance, in the mining and metals industry, independent assessment on site’s social performance systems is complemented by confidential interviews with local communities, Indigenous People’s representatives and vulnerable groups (such as women, the elderly, youth, Migrant Workers). This enriches our insights, and brings a contrast to how a site is perceiving their social impact vs. impacts perceived by the affected stakeholder groups.
- Leveraging digital technologies and Worker’s Voice assessments. To assess working conditions, engaging with factory and floor shop workers is a vital part of an independent assessment. Workers Voice surveys allow for a confidential process to reach workers, and help auditors to consult another set of evidence in addition to management interviews and systems reviews.
- Decommissioning, closure and divestment plans putting people and the environment at the centre : transition out of high-carbon industries, exiting from mining and fossil fuel extraction risks not only instability for commodity-dependent economies, but also for workers and communities who may not be able to secure new employment and livelihood opportunities. Companies must consider the entire lifecycle of operations when drafting credible approaches to ‘just transition’.
- Assessing ‘just transition’ approach against benchmarks and equity frameworks: There are a number of publicly available assessment frameworks which can help businesses gauge their current progress in integrating ‘just transition’ principles into their strategies. This includes the WBA’s Just Transition Methodology which helps companies start their own assessment of their current approach, LSE’s Financing a Just Transition programme, the Institute of Human Rights and Business’ Just Transitions for All report, and the Energy Equity Project (EEP) Framework that allows companies to measure and advance energy equity, to name a few.