As the net-zero transition picks up pace, a recent event in London, hosted by Lloyds Bank, outlined the key considerations that businesses and investors must explore to ensure parts of society aren’t left behind.
One of the main talking points at Lloyds Bank’s inaugural Just Transition event in London last week was that the Just Transition has arrived. What was once just a throwaway line in the Paris Agreement in 2015 has cascaded into a theme that is increasingly being woven into discussions around climate and the economy. For many, the question is how this thread can bridge the gap between climate action and people.
The concept of the Just Transition has its roots in trade unionism, and originally referred to protecting the livelihoods of workers at risk of losing jobs and the communities around them due to changing environmental policies. The term is now generally seen more broadly as ensuring that the socioeconomic benefits of creating a more environmentally sustainable society are felt equitably, especially as the net-zero transition gathers pace.
Discussions at the event focused on how the Just Transition needs to contribute to wider goals for decent work for all, social equality and eradicating poverty. Through the lens of corporate climate action, this is a daunting and unprecedented task, either due to the sheer scale of transformation required, or because of the lack of metrics, policy support and definitions to embed it into existing or new decarbonisation strategies.
A key message from the event is that the net-zero and a Just Transition cannot be approached in isolation. Organisations need to realise the interdependencies of decarbonisation, social mobility and net-zero will not be fully delivered if parts of society resist the transition because they are ignored and left behind.
Huge parts of the economy and many nations and regions are built on the foundations of carbon-intensive activities and sectors that will need to transform in order to be a viable part of the low-carbon economy. Businesses, governments and investors alike will need to work together to ensure that no communities are left behind and that a net-zero future is an equitable one too.
Experts at the Just Transition event spoke of the need to fix the causes, rather than the symptoms, of the climate and nature crises in order to account for the needs of communities and individuals. But, just how is this done?
The Business Approach
Earlier this year, edie published the results of a survey on 225 sustainability and ESG professionals. Published as part of edie’s ongoing partnership with Lloyds Bank, the survey found that 50% of sustainability professionals either agreed or strongly agreed that the Just Transition is a “vital part” of their sustainability strategy, compared to just 20% who disagreed. But what does this look like in practice?
Experts at the event outlined ways businesses and investors could incorporate the themes of the Just Transition into strategies and activities.
One key warning was that without looking holistically across the spectrum of environmental and social stewardship, existing plans may well be creating injustices. A prime example of this is decarbonisation in hard-to-abate sectors.
More than 1,000 oil and gas workers in the UK have backed calls for fairer pay and measures to be introduced to help the sector’s workforce be upskilled into green jobs, as part of a just low-carbon transition, but are concerned that the current net-zero trajectory may put them out of work.
Experts at the event recommended that businesses and investors needed to engage with the communities that they operate in and rely on, so that they are involved in decisions rather than have a huge transformative shift inflicted on them. Most transitions to date, including the industrial revolution, have been driven by market shifts that are at risk of ignoring the human aspect and speakers were in agreement that a net-zero transition is not possible without accounting for society and communities too.
If this is the big-picture thinking, then businesses will need to consider how the Just Transition is represented in corporate strategies.
Speakers noted that the Just Transition cannot just be a tagline on an existing decarbonisation strategy.
A Just Transition should be embedded as part of a corporate purpose. It cannot function as a tick box activity or an add-on to an existing sustainability strategy. Businesses wishing to drive the Just Transition must reevaluate their entire purpose and ensure that the growth and value that they generate can be shared with the communities that they rely on.
Fortunately, delegates at the event agreed that the opportunities that the low-carbon transition brings can be shared to create prosperity for societies. Innovations like electric vehicles (EVs) can improve air quality within cities; low-carbon hydrogen has the potential to transform entire regions and workforces, provided current workers can be upskilled.
At a strategy level, speakers at the event spoke of the need to figure out where tangible targets can be introduced as the focus cascades down from the broader purpose into actual targets. Speakers recommended identifying material areas of action where that organisation can have the biggest impact. Investors may look at social housing for example, while energy firms may look at ensuring charging infrastructure for EVs is available for all communities.
These focus areas will make it easier to articulate a company’s purpose to its staff, mobilising more action as a result. Businesses will also need to consider which areas of public policy they can influence or lobby for change in order to drive action.
As organisations restructure their purpose internally, it is important to consider the external challenges that are hindering progress against a Just Transition.
The main barriers halting progress of the net-zero transition can be chiselled down to two main facets; policy and metrics.
Currently, a net-zero workforce does not exist and businesses need to evaluate how staff are engaged with and educated. Businesses can ensure that all roles within their organisation have green strings attached. This may require new KPIs across the business, but crucially it involves educating and upskilling to create the skilled workforce required to deliver the transition.
More broadly, they will need to work collaboratively in the void where political certainty should be. Speakers noted the need for the UK Government to create a Net-Zero Jobs Plan.
A report from the Climate Change Committee (CCC) in May 2023 calculated that the net-zero transition can deliver between 135,000 and 725,000 net new jobs in low-carbon sectors such as buildings retrofit, renewable energy generation and electric vehicles. This includes potential job losses as sectors phase away from fossil fuels, but the CCC adds that upskilling and retraining can deliver a net gain.
To date, 250,000 jobs have already been created in the transition, but government policies are failing to realise the full extent of the transition, with up to 750,000 new green jobs potentially available, according to the CCC.
This could potentially dent the UK’s competitiveness if they are unable to incorporate the Just Transition into existing net-zero legislation.
Policy would also help inform metrics and definitions of exactly what a Just Transition is and what it means for businesses and financial institutions.
Speakers at the event spoke of the need to avoid “justice washing”, and some businesses may be more focused on maintaining profits and other short-term mindsets, rather than looking at the long-term needs of society. As with most issues in the sustainability sphere, issues of greenwashing also need to be addressed. In the case of the Just Transition, businesses need to showcase how their targets avoid “justice washing” while investment streams will need to be able to identify the social co-benefits that their funding provides.
Indeed, the UK’s Green Gilts programme has, to date, connected spending to social co-benefits raising £36bn.
The Transition Plan Taskforce (TPT) has called on corporates to publish their transition plans for reaching net-zero this year and speakers at the Lloyds Bank event noted that this may well help firms consider societal needs as part of their transitions.
Additionally, movements like B Corp and the Better Business Act are growing in prominence and could help businesses analyse their current impacts and provide new metrics to create a purpose that can contribute to the Just Transition.
Financing the Just Transition
The UN estimates that every year through to 2030, between $5trn and $7trn will need to be deployed if the Sustainable Development Goals (SDGs) are to be achieved.
Much work is underway to move finance from public sources, such as the Barbados-led Bridgetown Agenda to change the architecture of work from Multilateral Development Banks that kick-started at the last UN climate summit in Egypt. South Africa has also launched a dedicated Just Energy Transition Investment Plan.
But moving the trillions will also require huge shifts in the allocation of private finance, which has to be an enabler of the Just Transition.
Low-income households, for example, may not be able to afford retrofits, or even own the house to be able to carry out energy efficiency upgrades or EV purchases, so banks and governments need to look at social responsibility budgets to assist the households that need it most.
We are seeing signs of the transition picking up pace here. The Impact Investing Institute, for example, has launched the Just Transition Finance Challenge. The Challenge brings together global financial institutions with more than £4trn of assets, or assets under management, that are committed to financing a Just Transition in the UK and emerging markets.
Many within the financial sectors are exploring how “place-based solutions” can help drive change, while considering the thoughts and challenges facing local communities.
Lloyd Bank, for example, is working with other organisations including the National Grid on the “Local Low-Carbon Accelerator” to provide a blueprint for local authorities and the private sector to work together and get green infrastructure delivered faster while providing additional benefits for communities. Indeed, speakers at the event noted that SMEs in local communities would act as the “engine room” of the Just Transition, and that investors would need to support them and start-ups to scale up solutions.
Indeed, a Project Drawdown study found that just by creating universal access to education for women could save 85.4 billion tons of CO2e emissions between 2020 and 2050 and businesses and investors will also need to consider social mobility as part of their plans to unlock new thought processes.
The discussions at the event can be summarised perfectly by edie and Lloyds Bank’s Corporate Climate Finance report. In the report, Jonas Persson managing director, head of sustainability & ESG finance at Lloyds Bank explained how the low-carbon transition is becoming increasingly complex as “we need to incorporate nature and biodiversity, and in addition, we should ensure that any actions to transition leaves no one behind – companies, communities, or people”. Click here to download the report.
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