Private finance – Just Transition Initiative

What is "Just Transition"?

Commentary

Jun 2021

Worker’s Voice and Investing in a Just Transition: The Fonds de Solidarité FTQ

Investors are embedded in society, and the Solidarity Fund of Québec shows one example of direct engagement by investors to help workers and communities to prepare for an energy transition.

Geographic Scope
Sectors: General
Focus Areas: Economic diversification/restructuring > Infrastructure investment; Employment > Skills; Investment > ESG and corporate engagement, Private finance
Keywords: investors; multi-sector dialogue; labor movement
By: David Wood, Andre Almeida Santos
Publishing Organization: Center for Strategic and International Studies, Climate Investment Funds (CIF)
Academic/research institution or journal, Development finance institution

Report/Case Study; Guidelines, Strategies and Recommendations

Jul 2021

From the grand to the granular: translating just transition ambitions into investor action

The report describes the current state of the just transition discourse amongst businesses and highlights, with the help of case studies, a just transition “Expectations framework” that can be used by businesses and investors to help with investment assessments and due diligence, shareholder engagement, as well as capital allocation decisions.

Geographic Scope
Sectors: General
Focus Areas: Government intervention > Other, Regulation; Investment > ESG and corporate engagement, Other, Private finance
Keywords: supply chain; CSR; co-creation; reporting; Task Force on Climate-related Financial Disclosures (TCFD); investors; private sector; OECD’s Guidelines for Multinational Enterprises; EU taxonomy; benchmarks; Climate Action 100+ (CA100+)
By: Nick Robins, Sabrina Muller, Katarzyna Szwarc
Publishing Organization: Grantham Research Institute on Climate Change and the Environment, Centre for Climate Change Economics and Policy, London School of Economics and Political Science
Academic/research institution or journal
Summary: The report describes the current state of the just transition discourse amongst businesses and proposes a path forward for businesses and investors to integrate just transition considerations into business decisions. The authors identify the just transition as a critical enabling factor in reaching net zero, noting how governments are increasingly recognizing that climate policies that do not take into account the effects on employment, communities, and consumers run the risk of failure. According to the authors, as the strategic case for just transitions has deepened, leading companies in the energy system have begun to formalize their responses as part of wider climate change strategies., Investors can also play a significant role by making sure that the social dimension is fully integrated into their assessment, stewardship, capital allocation, and policy activities.

The report presents a seven-point framework that combines the governance dimension for businesses (in terms of strategy, policy dialogue, and transparency) with a stakeholder component (including workers, communities, supply chains, and consumers). The intention is for this framework to be used in investment assessments and due diligence, shareholder engagement and stewardship, as well as the capital allocation decisions for portfolio companies. The framework is applied to analyze the work accomplished to date by five European international power utility firms.

The report identifies key lessons, including that businesses acknowledge some of the core foundations of just transitions, though the strategic approach is still emerging, with and that transparency and disclosure on just transitions is still lagging. It also points out how it is likely that investors will increasingly expect an active interest from companies to promote just transitions through public policy advocacy. Furthermore, supply chain realities loom large, in terms of generating quality green jobs for local people and also making sure that sustainability and human rights due diligence are intensified in international sourcing from developing countries. The authors highlight the need for community engagement to move from traditional corporate social responsibility activities to a more transformational model that is built upon co-creation. The report concludes with some critical next steps needed, including: promoting convergence around common approaches; modeling to help identify priority areas for investors; understanding better the role of participation and investor dialogues in just transition plans; along with clarifying the investor role in just transitions in emerging and developing economies.

Report/Case Study; Guidelines, Strategies and Recommendations

Dec 2018

Climate change and the just transition: A guide for investor action

This report applies a just transition lens to investor approaches, using illustrative examples to propose a framework that helps investors to place just transition principles at the center of their climate strategies.

Geographic Scope
Sectors: General
Focus Areas: Government intervention > Other, Regulation; Investment > ESG and corporate engagement, Other, Private finance
Keywords: investors; framework; fiduciary responsibility; financial risk management; private sector; capital allocation; Principles for Responsible Investment (PRI); Task Force on Climate-related Financial Disclosures (TCFD)
By: Nick Robins, Vonda Brunsting, David Wood
Publishing Organization: Grantham Research Institute on Climate Change and the Environment
Academic/research institution or journal
Summary: This report contends that investing in a just transition is set to be the best way to manage the strategic risks and opportunities flowing from the shift to a prosperous, low-carbon, resilient, and inclusive global economy. It highlights the influential role played by investors as the fiduciaries of assets and allocators of capital. The report also suggests how strategies for tackling the growing threat of climate change need to incorporate the full range of environmental, social, and governance (ESG) dimensions of responsible investment. This guide draws from an international review of investor approaches and dialogues with investors to provide a framework that can be applied both by individual institutions and through collaborative initiatives to help investors place just transition principles at the center of their climate strategies.

The article, using several examples of investor actions from around the world, highlights some strategic motivations for investors to pursue this work, including: broadening the understanding of systemic risks from climate change; updating the fiduciary responsibility to capture interrelated environmental and social drivers of long-term performance; recognizing the material drivers of long-term value; and identifying new growth opportunities in areas that combine climate and social goals. Based on these motivations, the article suggests five core areas of action for investors, including investment strategy, corporate engagement, capital allocation, and policy advocacy. The article also provides initial questions for investor engagements with companies on the just transition and highlights the need to build in a process to learn from the emerging experience and the lessons of practice, in terms of corporate engagement, capital allocation, and policy advocacy.

Report/Guidelines, Strategies and Recommendations; Policy Tools or Evaluations

Nov 2018

Managing Coal Mine Closure: Achieving a just transition for all

This paper narrates the lessons and key considerations for planning and implementing a coal mine closure program, as derived from a review of global experiences and over two decades of World Bank assistance in coal mine closures to governments, enterprises, workers, and their communities.

Geographic Scope
Sectors: Mining
Focus Areas: Economic diversification/restructuring > Economic development plans; Employment > Job creation and/or equality, Skills, Social protections; Environment and/or pollution > Nature; Government intervention > Public finance, Regulation; Inequality and/or poverty > Gender inequality; Investment > Private finance; Social and/or cultural impacts > Non-financial loss
Keywords: mine mechanization; coal mine community characteristics; narrow economic base; political economy; labor mobility; mobility assistance; financial assurance mechanisms; Canada’s Industrial Adjustment Services; China’s urban Dibao social assistance program; transition funds
By: Michael C.Stanley, John E. Strongman, Rachel Bernice Perks, Helen Ba Thanh Nguyen, Wendy Cunningham, Achim Daniel Schmillen, Michael Stephen Mccormick
Publishing Organization: World Bank Group (WBG)
Development finance institution
Summary: The paper, using a review of global experiences and the World Bank’s decades of assisting governments to close mines, provides recommendations to policymakers on how to plan and implement a coal mine closure and mitigate the impacts on the people, communities, and livelihoods. The article highlights the typical characteristics of coal mining communities, which influence the potential for regional recovery after a closure. Many coal-dependent regions continue to lag behind other regions socially and economically, decades after a mine has been shut down. It further highlights how there are few if any instances of fully satisfactory economic rejuvenation outcomes in mono-industry coal mining towns, thereby emphasizing the acute need for early and careful planning to deal with the impacts of a closure.

The paper identifies nine lessons learned from managing coal mine closures, which are organized under three themes—namely policy and strategy development; people and communities; and land and environmental remediation. The policy and strategy development theme emphasizes that coal mine closures require clear policy direction, large budget outlays, and significant stakeholder consultations. The section on people and communities underlines the importance of a Just Transition for All to meet the needs of workers, families, and the wider community. The land and environmental remediation strategies advance the importance of financial planning for environmental remediation and land reclamation and summarizes a range of possible financial assurance mechanisms available. Some of these mechanisms are mobility assistance, employment services and small business support services, social assistance payments, and various financial assurance mechanisms for mine closures.

Report/Policy Tools or Evaluations

Jun 2021

Towards a Just Transition Finance Roadmap for India: Laying the foundations for practical action

The report identifies priority actions for the financial sector in India to address social risks arising from the economic transition, with the help of a just transition framework that assesses the exposure by sector and region.

Geographic Scope
Sectors: Energy; General; Industrial; Mining; Transportation
Focus Areas: Employment > Job creation and/or equality; Government intervention > Other, Public finance, Regulation; Investment > ESG and corporate engagement, Other, Private finance
Keywords: India Just Transition Finance Roadmap (JTFR) project; urbanization; digitalization; Sustainable Development Goals (SDGs); double materiality; credit rating; green bond regulations; ESG reporting; Central Banks and Supervisors Network for Greening the Financial System (NGFS); freight; cement; green bonds; green loans; Reserve Bank of India; fiscal policy; CSR
By: Suranjali Tandon, Annapurna Mitra, Nick Robins
Publishing Organization: CDC Investment Works
Academic/research institution or journal
Summary: This report, a product of the India Just Transition Finance Roadmap (JTFR) project, identifies some priority actions that financial institutions can take to support climate action that also delivers positive results in terms of livelihoods and sustainable development. It involves a review of existing practices, an assessment of exposure by sector and region, and the identification of some priority actions for the finance sector. The authors describe the just transition agenda as the “connective tissue” that binds climate goals with social outcomes.

The authors highlight how India simultaneously confronts the challenges of multiple economic transitions—urbanization, digitalization, and the shift to zero carbon. They identify the distributional impacts on Indian states in sectors that are expected to be the most impacted, including: coal mining, electricity generation, agriculture, manufacturing and industry, along with transportation. Using the four dimensions of social risk arising from the net zero transition—namely livelihoods, energy access, public finance, and human development, they find that Madhya Pradesh, Jharkhand, Chattisgarh, Uttar Pradesh, Bihar, Odisha, Telangana, and Rajasthan will be the most affected by the zero-carbon transition.

The authors suggest that the framework shows a possible mapping of risks to investments, highlighting the role that financial sector players, regulators, and policymakers need to play in ensuring that a just transition is achieved. Furthermore, they highlight how the framework can be used to provide guidance for investors to understand company operations in vulnerable regions, and whether there are any investment strategies capable of mitigating the risks in these regions. It can also provide guidance for investors seeking to align capital allocations with the just transition framework. From their conversations with investors, the authors identify how the just transition is still at an early stage of development in India and needs definition and how it needs to be placed in a core sustainable developmental context. Furthermore, the conversations also reveal that policy action is a crucial catalyst for a just transition and that shareholder engagement on just transitions is increasing.

Report/Policy Tools or Evaluations

Jan 2021

Toolkit for assessing effective Territorial Just Transition Plans

This paper identifies a set of principles and proposes a tool for assessing whether European Union (EU) member states’ Territorial Just Transition Plans (TJTPs) that are required for them to access the EU Just Transition Fund would be effective for delivering a just transition.

Geographic Scope
Sectors: General
Focus Areas: Economic diversification/restructuring > Economic development plans; Government intervention > Other, Public finance; Investment > Private finance
Keywords: EU Just Transition Fund; Territorial Just Transition Plans (TJTPs); scorecard; assessment tool
Publishing Organization: World Wildlife Fund (WWF)
Non-profit organization/civil society organization
Summary: This paper identifies a set of principles and includes an associated toolkit to assess whether the Territorial Just Transition Plans (TJTPs), developed by member countries of the EU in order to access the EU Just Transition Fund, can enable the delivery of a truly just transition to climate neutrality. Targeted at policymakers, municipalities, civil society, and other partners involved in developing plans, it aims to provide guidance on what a good plan looks like and enable an evaluation of the quality of the plans developed.

The methodology of the tool is based on a series of indicators that allow one to review the performance of the plans against 10 principles. The application of the methodology, which is also available as a webtool, results in a “traffic-light” rating on the plans. WWF intended for the toolkit to be used by the European Commission, national and local policymakers, and any other stakeholders engaged in the development of the plans. WWF has also indicated that published reports are verified and added to their website’s resource page.

Academic paper/Guidelines, Strategies and Recommendations; Policy Tools or Evaluations

Jan 2021

Mitigating inequality with emissions? Exploring energy justice and financing transitions to low carbon energy in Indonesia

This article analyzes energy justice in Indonesia’s transition to low-carbon energy and explores how policies have exacerbated energy injustice.

Geographic Scope
Sectors: Energy
Focus Areas: Inequality and/or poverty > Other; Investment > Private finance; Justice
Keywords: energy justice; energy poverty; climate finance; private finance; procedural justice; recognition
By: Abidah B. Setyowati
Publishing Organization: Energy Research & Social Science
Academic/research institution or journal
Summary: This article explores Indonesia’s efforts to reduce energy poverty in its transition to low-carbon energy, with a particular focus on how distributive, procedural, and recognition justice has been included in policies aimed at increasing private investment in renewable energy electrification. Based on the analysis derived from qualitative interviews, field observation, and the review of government documents and policies, the author argues that despite Indonesia’s energy justice agenda of providing access to affordable electricity for all, the policies in place do not effectively promote energy justice.

In terms of distributive justice, the author argues that spatial injustice in electricity access is still prevalent, especially in the eastern part of Indonesia, where many communities lack reliable energy access. The author suggests that many renewable rural electrification projects may exacerbate this spatial inequality by supplying households and cities that have access to a grid network, while neglecting communities that live closest to the electricity generation sites. This is partly due to the government’s encouragement of private investment that favors large-scale projects, thereby further exacerbating geographic inequalities. The author argues that procedural injustice is also prevalent in the energy decision-making processes due to a lack of transparency in the current bidding and procurement processes and limited space for the public participation and engagement in decisions. In terms of recognition, the author asserts that marginalized communities living in areas, where electricity is not considered economically favorable, are neglected and denied electricity access.

The author also makes suggestions for better ways to incorporate energy justice principles into policies and programs. First, energy policies should include more inclusive approaches, such as encouraging public participation and increasing transparency. Second, energy policies need to incentivize diversity beyond large-scale and on-grid projects to effectively target those most affected by energy poverty. Third, contextually grounded approaches best suited to the needs of local communities should be prioritized. Finally, public finance should also be considered in addressing the needs of those most vulnerable to energy poverty.

Academic paper/Case Study; Guidelines, Strategies and Recommendations

Mar 2020

Electrifying the ‘eighth continent’: exploring the role of climate finance and its impact on energy justice and equality in Madagascar’s planned energy transition

The study looks at Madagascar’s history of energy transition in the context of various financing instruments and actors as well as identifies the potential impacts on social equity.

Geographic Scope
Sectors: Energy
Focus Areas: Economic diversification/restructuring > Infrastructure investment; Government intervention > Public finance; Inequality and/or poverty > Other; Investment > Competitiveness, Private finance
Keywords: rural electrification; private sector; financial innovation; subsidies; electricity prices; stakeholder maps; direction of power; veto player; leapfrogging; stakeholder alliances
By: Tim Cholibois
Publishing Organization: Climate Change
Academic/research institution or journal
Summary: Through an analysis of projected energy finance flows and key financiers’ financing strategies, this paper shows a shift from grant-based climate finance to financial instruments with clear return profiles, such as concessional loans and private capital. It finds that the choice of financial instrument does impact the provision of complementary social services in rural electrification schemes. While grants are associated with higher investments in complementary social services, private financiers are focused on innovation and scale. Electrification projects that are financed purely privately were found to negatively impact social cohesion by increasing the inequality in access to energy.

The authors identify that apart from the financing gap of USD13 billion identified in the national plan as the main roadblock to successful implementation, there exist a whole set of interrelated, mutually reinforcing barriers to successful electrification, such as low institutional capacity, a lack of human capital and technical knowledge, corruption, and a dysfunctional utility. The authors use stakeholder maps and case studies from three rural electrification projects as part of the analysis.

The study concludes that, if only commercially viable energy projects were to be financed going forward, up to 19 million Madagascans might be excluded from future electrification efforts. Thus the paper recommends the need to promote climate finance literacy and the use of multiple electrification pathways. The author provides some examples, such as “grid extensions” through concessional loans, “scalable innovation” using private capital and risk guarantees, or grant-based “social mission” programs. The author suggests that the findings are relevant not only to Madagascar, but to most, if not all, least-developed countries (LDCs) aiming to decarbonize their economies.

Report/Guidelines, Strategies and Recommendations; Policy Tools or Evaluations

Jun 2020

Transformative Climate Finance: A new approach for climate finance to achieve low-carbon resilient development in developing countries

The report highlights the need for the catalytic deployment of international public finance for climate finance and identifies eight levers for driving climate action, with just transition considerations seen as a necessary crosscutting theme to ensure progress.

Geographic Scope
Sectors: General
Focus Areas: Government intervention > Carbon pricing, Public finance; Investment > Private finance
Keywords: international climate finance; fiscal policies; sectoral policies; trade policies; carbon markets; innovation and technology transfer; climate intelligence; financial instruments
Publishing Organization: World Bank Group (WBG)
Development finance institution
Summary: The report identifies the mismatch between the amount of funding available and the amount needed for climate finance, thus highlighting the need to deploy international public climate finance more catalytically to increase the flows of private capital and government spending. The report identifies eight sets of financing levers for driving climate action: project-based investments, financial sector reforms, fiscal policies, sectoral policies, trade policies, innovation and technology transfer, carbon markets, and climate intelligence. For each of these levers, the report identifies the main interventions available, barriers to action, as well as the role and relevance of the instruments available. The report also broadly lists the mitigation and adaptation priorities across different sectors, including energy systems, land and ecosystem, the urban and infrastructure, as well as industrial systems.

The need for an equitable consideration of social and political economy issues in the countries and the regions to which they are applied is highlighted as a crosscutting issue across all levers. The report states that the use of climate finance to support this process, even when it does not achieve climate results directly, is essential for successful clean development. The report suggests that more can be done to refine the differentiation of climate finance to match the specific needs and circumstances of countries. This includes applying tiered conditionality for more advanced countries, which is dependent on their own efforts and orientation toward long-term strategies.

The report also acknowledges that a systematic and comprehensive analysis of the societal dimensions of transformative climate action covering all relevant sectors of the economy, along with the major types of transformative climate action, is still lacking. It states that the World Bank intends to contribute to closing this knowledge gap through a forthcoming report on the societal dimensions of transformative climate action.

Report/Case Study; Guidelines, Strategies and Recommendations

Mar 2021

Seizing the Urban Opportunity: How National Governments can Recover from Covid-19, Tackle the Climate Crisis and Secure shared Prosperity through Cities

This collaborative report examines how national governments can leverage cities to help address the triple challenge of Covid-19, sustainable development, and climate change.

Geographic Scope
Sectors: Energy; Industrial; Transportation
Focus Areas: COVID-19; Economic diversification/restructuring > Infrastructure investment; Employment > Job creation and/or equality; Environment and/or pollution > Human health; Government intervention > Public finance, Regulation; Inequality and/or poverty > Other; Investment > Private finance; Resilience
Keywords: Shared prosperity; inclusive societies; resilient cities; poverty; emerging economies; urban infrastructure; national-level government; Covid-19 recovery
By: Marion Davis, Shagun Mehrotra, Aarathi Kumar, Alfredo Redondo, Anna Kustar, Britta Rennkamp, Christopher Gillespie, Daizong Liu, Freya Stanley-Price, Gorka Zubicaray, Hendricus Andy Simarmata, Jessica Hanlon, Leah Lazer, Madhav Pai, Nick Godfrey, Pablo Lazo Elizondo, Pandora Batra, Retno Wihanesta, Robin King, Shiyong Qiu, Sophia Vitello, Tanya Jiménez
Summary: The authors discuss how national governments can harness cities to bring about a sustainable and inclusive post-pandemic economic recovery while achieving climate goals. They focus on six emerging economies to demonstrate how fostering zero-carbon, resilient, and inclusive cities can advance national economic priorities for shared prosperity.

Referencing case studies from China, India, Indonesia, Brazil, Mexico, and South Africa, the authors explore three themes: 1) the need for a low-carbon urban transformation and its associated socio-economic benefits; 2) the importance of both resilience and decarbonization; and 3) the availability of resources to foster low-carbon, resilient, and inclusive cities. To inspire countries ahead of the 2021 UN Climate Change Conference (COP26), they analyze how cities can help national governments not only achieve their climate goals and shared prosperity, but also accelerate the Covid-19 recovery by making them more connected, inclusive, and clean.

The authors conclude with a global call to action, urging national governments to develop climate and sustainable development strategies centered around cities. While governments are essential to implementing transformative policies, the authors urge national leadership to partner with the private sector and local climate-action groups to finance sustainable and resilient urban infrastructure.