World’s first Just Transition Finance Lab launches in London

Based out of the London School of Economics and Political Science (LSE), the Just Transition Finance Hub will work to ensure that social considerations are embedded into decisions made by financial institutions as they finance the energy transition and wider shift to net-zero.

Teams at the hub will design financial instruments, metrics and strategies that can be used in the real world by financiers in the public and private sectors.

According to Net-Zero Tracker, more than 90% of global GDP is now covered by net-zero targets set by national and/or regional governments. Policymakers are increasingly collaborating with financial institutions to unlock the delivery of unprecedented decarbonisation, and the new Hub will advocate for this being an opportunity to also address social inequalities.

Professor Nick Robins said: “The vast majority of financing decisions for climate action do not explicitly consider the social opportunities, social risks or social dialogue needed to ensure success. If this is not remedied, the world could miss out on the huge potential for social advancement in terms of more and better jobs, gender equality, community renewal and universal access to key goods and services such as energy.

“A failure to achieve the just transition could also result in negative consequences for some workers, communities, enterprises and consumers, undermining trust and setting back progress on climate action.”

At the World Economic Forum’s recent annual summit in Davos, attendees met with an intention of “rebuilding trust” amid the proliferation of misinformation and disinformation which has helped to fuel social polarisation.

Robins and his colleagues at LSE have warned that incremental changes to the global financial system will not be sufficient to deliver global climate and nature goals – let alone achieve them in a just manner.

They are calling on financiers to price in just transition requirements and allocate capital in new ways. They acknowledge that, for this to happen at scale, policymakers must shift to encourage new processes on a voluntary basis, and consider mandates too.

An initial report from the team floats the idea of embedding just transition principles into all bonds badged as green, social, sustainable and sustainability-linked (GSS+). Total issuance of these bonds to date exceeds $3.7trn and the market is primed for further exponential growth. The Hub team does not want this growth to result in steps forwards for climate, but backwards for social sustainability.

It states that “there is a growing market interest in the potential for these bonds to support a just transition, and integrating just transition into bond issuance can maximise the social co-benefits of green investments, ensure the transition does not exacerbate existing inequalities, and enable greater climate ambition.”

Just last week, S&P released new forecasting claiming that GSS+ bond issuances in 2024 could exceed $1trn this year in a first for the market. It predicts $1.05trn of issuances this year, up from $0.95trn in 2023.