What is a Just Transition? And why do we need one?

The Just Transition is an overarching concept of ensuring fairness and equity in the process of transitioning to a net zero economy, ensuring that no one is left behind and that the most vulnerable communities and workers are supported during the transition.

Without due attention, both the extreme weather associated with climate change and the financial burden will disproportionately be felt by the poorest in society. “We have to ensure the next transition is Just, so that all communities and stakeholders not only survive, but also thrive – not just because it’s the right thing to do but because it’s the transition approach which creates the “least friction” and so is the pathway most likely to achieve success” says Chinyelu Oranefo, Director, Sustainability & ESG Finance at Lloyds Bank.

Oranefo points out that, whilst previous energy transitions in the UK – such as the transition from coal to gas in the 1980s – resulted in the UK reducing its emissions by 50%, it also resulted in the disruption of communities, particularly in the north of England.  She is certain that a better result can be achieved in the transition to a net zero economy across all regions where communities, workers and supply chains are not left behind.  Corporates, she says, have a key role to play in facilitating a Just Transition. In many cases, this simply starts with an assessment of the impact of a corporate’s net zero plans which leads to engagement with those stakeholders affected to ensure they can also take advantage of the opportunities that the net zero transition presents.

Rising up the agenda

First flagged in the landmark Paris Agreement of 2015, June 2023 saw world leaders bring focus on the need for a Just Transition through a call for “ecological transitions that leave no one behind”, highlighting the potential “for alleviating poverty and supporting inclusive and sustainable development”. An open letter signed by Prime Minister Sunak, President Biden, President Macron, Chancellor Scholz, President of the European Commission von der Leyen and many others, stated that poverty reduction and protection of the planet are converging objectives and called for Just and inclusive transitions to be prioritised.

“Just Transition has gone from a single line in the Paris Agreement to a core focus,” says Nick Robins, Professor in Practice for Sustainable Finance at the London School of Economics’ Grantham Research Institute. “There’s a recognition that we need to deliver climate and social goals simultaneously.”

However, while the language around Just Transition may be new, the objectives are familiar. “The UN Sustainable Development Goals (SDGs) already commit the world to eliminating poverty and reducing inequality as well as achieving gender equality” says Robins. “What the Just Transition does is provide the bridge between climate action and these social objectives. In essence, it is about overcoming the siloes in our mind that separate climate and social justice.”

What needs to happen?

According to Robins, a Just Transition to net zero in the UK requires seven elements working together:

• Robust government policy: “We need net zero plans that ensure climate goals are delivered in a way that protects communities from disruption and harnesses opportunity. There is a Green Jobs Task Force, for example, but we need much clearer signals, incentives and regulations.”
• Buy-in from companies and financial institutions: “Companies need to anticipate the social risks and opportunities of the transition and incorporate them into their net zero plans. They should encourage participation by all stakeholders, including their workers and the communities where they operate.”
• A regional focus: “There needs to be a place-based approach to integrate Just Transition principles into energy, agriculture, buildings and other policies in ways that reflect the needs of each region of the UK.”
• Clear sector pathways: “Phasing out oil and gas and increasing renewables is absolutely key. But all sectors need net zero pathways that include Just Transition principles.”
• Mobilising finance: “We need to mobilise private finance for net zero – a fivefold increase in funding is required this decade – and we must integrate Just Transition principles into green finance.”
• Measurement and metrics: “How do we know whether we’re making progress? What does good look like? Metrics are essential to allocate capital and resources but also to avoid ‘justice washing’ and prevent a Just Transition being used as an excuse for delaying action.”
• Global action: “Developing countries will be hardest hit and we need to mobilise finance via partnerships between developed and developing countries and prioritise efforts to crowd-in private finance. A Just Transition has to be core to every country’s net zero plans.”

Looking to the opportunities

The risks of climate change and potential social disruption are real enough but the key to spurring action is to view a Just Transition in terms of potential opportunities, says Robins. “It is a good news story and could mean more – potentially better – jobs, enable us to reduce inequality, improve health, curb conflicts, and avoid catastrophic climate damage.”

Sir Robin Budenberg, Chair of Lloyds Banking Group, says that such a focus is likely to strike a chord with companies. “Put simply, the transition to a green economy will create significant opportunities for business. A Just Transition is about distributing those socio-economic benefits more fairly than has been the case in the past. Large companies now almost universally operate with a purpose and can apply that to a Just Transition.”

Social dividends that could be created by the transition to a low-carbon economy include jobs such as renewable energy installation, energy efficiency retrofitting, sustainable agriculture, and other environmentally-friendly sectors. However, whilst some of the technologies associated with climate transition, such as electric vehicles, offshore wind, carbon capture and storage and hydrogen dominate the headlines, more prosaic projects will also be critical – and can deliver significant social benefits.

Closer to home is the need to retrofit the UK’s housing stock which is some of the worst in the EU – “…housing will be a key part of the Just Transition, for instance” says Budenberg. Housing Associations in the UK need over £100bn to bring their buildings up to net zero standards; that will not only deliver the UK’s green transition but also reduce fuel poverty.

As well as targeting groups such as social housing tenants, Budenberg says a Just Transition must target geographical regions facing the greatest challenges. “Some areas, such as the North East, may face greater disruption and have further to go to capitalise on green growth,” says Budenberg. “But they also have great opportunities due to their proximity to new net-zero industries like offshore wind.” To this end, Lloyds Bank is working with the government and industry leaders such as Octopus Energy, Shell and National Grid on the , which will provide a blueprint for local authorities and the private sector to work together and deliver green infrastructure faster.

Key themes to be considered in the delivery of a Just Transition

• Social dialogue: Inclusive and participatory discussions and negotiations involving stakeholders such as workers, communities, governments, businesses, and civil society organisations. Social dialogue aims to reach consensus on the path and policies of a Just Transition, ensuring that diverse perspectives and interests are considered.
• Social protection: Measures and policies that safeguard the well-being and livelihoods of workers and communities affected by the transition. This can include income support, retraining programs, healthcare, and other forms of support to mitigate potential hardships.
• Energy democracy: The idea that communities and individuals should have greater control over the generation, distribution, and use of energy. It promotes decentralised and participatory decision-making processes in the energy sector, ensuring that the benefits of the transition are shared widely.
• Resilience: The capacity of communities and systems to withstand and recover from shocks, such as economic disruptions caused by the transition. Resilience strategies aim to build adaptive capacities and ensure the long-term viability of communities during and after the transition.

Key messages

• Past economic transitions, such as from coal to gas, have disadvantaged some communities for decades. A transition to a net zero economy must share costs and benefits more fairly.
• A Just Transition can drive efforts to reduce poverty and inequality and create educational and employment opportunities for the most vulnerable in society.
• Government policy will do much to set the terms of debate, but companies, investors and other stakeholders must embrace the Just Transition and consider what it means for how they operate.
• A Just Transition is aligned with large corporates’ growing sense of purpose, as well as offering attractive business opportunities.

Lloyds Bank actively seeks out opportunities to support their corporate and institutional clients to finance, and deliver a JUST net-zero transition, benefitting companies, communities, and the wider economy. Find out more about the Just Transition here.

This article, and quotes within, are based on discussions at the Lloyds Bank Just Transition Conference held on 15 June. The views expressed are those of the speakers and do not necessarily reflect the views of Lloyds Bank.