ESG Viewpoint: Investing in a Just Transition
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ESG Viewpoint: Investing in a Just Transition

It’s essential we consider the social dimension as we transition to a low carbon world. We explore the investment implications of a Just Transition.

  • The energy transition is underway. With it comes a host of opportunities for businesses and investors as we build the low carbon economy.
  • The transition brings many social impacts with it, and these will require effective and proactive management.

  • We are engaging with companies on their plans for a just transition and are looking for evidence of strategic thinking and concrete action. We outline the key components of a successful strategy.

  • We explore what a just transition means from an investment perspective, including the opportunities within our social bond strategies.

Why a ‘Just Transition’ matters to investors

The energy transition is underway. A rich seam of opportunities for businesses and investors is emerging as we build the low carbon economy, while the risks and dilemmas we will need to navigate are also becoming ever more evident. As signatories to the Net Zero Asset Managers Initiative1 and the Just Transition Finance Challenge2, we are committed to considering these fully as we embed the changes into our investment analysis.

As the transition progresses, consideration of the social dimension is critical. Significant risks to local communities and livelihoods need to be mitigated to avoid social unrest; investment is required in the skills to deliver green growth; and the thoughtful planning and building of trust and social licence with communities, customers and wider stakeholders must be put in place to ensure a just transition, with minimal negative impact on the worst off in our communities. Effective and proactive management of the social implications of transition will build resilience and underpin the ability to deploy capital at scale. As investors, we need to understand what this looks like and be clear in our expectations for the fair treatment of people.

What do we mean by a ‘Just Transition’?

‘Just transition’ is a term that acknowledges and addresses the human implications of the energy transition, both in transitioning ‘out’ of carbon intensive infrastructure and transitioning ‘in’ to new energy sources, products and services. It is not a firm set of rules but rather a concept and an ambition, though ‘guidelines for a just transition’ were published by the International Labor Organisation (ILO) as part of the 2015 Paris Agreement and represent a basic framework for good practice.3

It is generally accepted that there are three core elements of a just transition, as articulated by the G7-backed Impact Taskforce, which are: advancing climate and environmental action; improving socio-economic distribution and equity; and increasing community voice.

As investors, these topics arise in our discussions with companies within the broader context of engagement around workforce management, customer and wider stakeholder relations and general business planning.

What's next?

It is evident that a ‘just transition’ matters greatly, and investors, the corporate sector and society as a whole will benefit from giving the social dimension of transition the attention it requires. These issues take time and considerable effort to plan for, but we are already seeing market leaders take important steps. Our expectations for companies driving the transition to outline meaningful strategies are increasing as we move forward. We will continue to engage for progress, and to work on a robust assessment of related risk and opportunity in our investment analysis.

We expect the scope to broaden. The concept of a just transition is often limited in application to the fallout of closure of high carbon power generation, but we believe it has much wider applicability. We can extend the principles to the whole social side of climate change adaptation and mitigation as companies plan for supply-chain resilience, from shifts in agriculture sourcing to garment factories in South Asia exposed to physical climate risk.

There are challenges in tackling this topic. Social and environmental targets can sometimes come into conflict, and we must work hard as investors to avoid contradictory expectations on companies while supporting meaningful efforts to navigate the difficulties. A just transition to net zero can only really be achieved through a collaborative approach between all stakeholders, and we are fully committed to playing our part as investors.

Despite the challenges, it is also clear that the opportunities generated by the low carbon energy transition have the potential to be extraordinary, for both investors and society. It will require effective management of the social issues for that potential to be realised and lay solid foundations for growth. We will continue to develop our thinking on the topic of a just transition and to work in support of its success.

Interested in learning more?

Considering the social dimension of the transition to a low carbon world is essential.  We explore the investment implications of a Just Transition, outline what a successful strategy looks like and detail the results of our engagement with companies around their plans. 

Download the full ESG Viewpoint to learn more.

31 January 2024
Letitia Byatt
Social Impact Analyst
Vicki Bakhshi
Vicki Bakhshi
Director, Responsible Investment
Alice Evans
Alice Evans
Responsible Investment Strategist
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ESG Viewpoint: Investing in a Just Transition

1 The Net Zero Asset Managers initiative – An international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions

2 Just-Transition-Criteria.pdf (impactinvest.org.uk)

3 Guidelines for a just transition towards environmentally sustainable economies and societies for all (ilo.org)

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