Just Transitions: Progress to Date and Challenges Ahead

CSIS and the Climate Investment Funds (CIF) recently held a workshop to discuss just transitions—the idea that, as the world transitions toward sustainable development, workers and communities must both be protected by and benefit from the deep and rapid changes to come. Experts from multilateral development banks, labor and environmental organizations, think tanks, governments, and other institutions outlined key principles and challenges to just transitions. Offering feedback on our recent report and analytical framework on just transitions, they identified gaps in knowledge and key research questions to be addressed. The robust discussion focused on how to finance a just transition, including the role of governments, multilateral institutions, and the private sector. Several important themes emerged from the conversation.

First, there must be a stronger focus on how to achieve just transitions in the Global South. Much of the literature on just transitions focuses on developed economies. Retrospective case studies on Western countries help to outline the context for just transitions, including the political, social, economic, and environmental conditions that shape outcomes. But with the urgent need to address climate change, developing countries will face an acute burden, especially since many still depend on fossil fuel extraction and some have only recently discovered new fossil fuel resources that could have significant revenue potential. How can countries with fewer economic resources and limited social safety nets manage the threats to the environment and livelihoods? Since these countries are less culpable for global emissions and climate change, is it fair to expect them to share the burden of reducing global emissions? And can climate finance help to relieve this burden and drive rapid but equitable transitions? Detailed case studies on sub-Saharan Africa, Latin America, and developing Asia are needed to provide policymakers tailored guidance and recommendations. Such case studies should also be in languages other than English to enable stakeholders in the Global South to more readily engage in and contribute to the just transitions discourse.

Closer attention must be paid to power dynamics and political economy challenges. In the years to come, workers in the coal sector, mining, or energy-intensive heavy industries, as well as the communities that depend on those sectors, face market- or policy-induced transitions and must have a voice in planning for the future. In some places, established industry, local government officials, and certain unions have the resources and political clout to resist or block change. Political realities and obstacles to just transitions should be more explicitly discussed, and case studies that consider the importance of local context in various countries would be especially helpful.

Local-level capacity is another critical challenge. National mandates and plans to address just transitions can be necessary to spur and support local action in some cases. But for just transitions to work, the process needs to be owned at the local or regional level, not merely in the climate change-oriented discussion among multilaterals and central governments. Cities and regional governments will be on the front lines of dealing with transitions, but they often lack the political power and institutional capacity to plan and manage broad systemic changes and commonly do not have a clear sense of roles and responsibilities. In some instances, national legislation significantly curtails the options of very capable local governments. Local governments also lack access to finance on the scale required to manage worker displacements and fund new adjustment programs, worker retraining, and other social insurance. Case studies of Germany and other countries offer lessons learned on how to manage long-term, structural transitions, but again the literature is lacking for many developing countries with weaker institutions and social dialogue mechanisms.

Workers in the informal sector should also have greater prominence in just transitions plans. In many countries, the bulk of the workforce is in the informal sector, and without any formal safety net, these workers are more vulnerable and at greater risk of losing their livelihoods. If a coal plant, mine, or garment factory shuts down, workers along their supply chains and in their communities will be affected. Some workers in the informal sector are represented in associations, but most cannot unionize and lack a voice in how transitions are planned, placing them at a disadvantage.

Gender and race dimensions of just transitions are also critical. Industrial transitions can place a heavy burden on women. In many traditional mining communities, for example, women are unable to break free from gender norms but simultaneously face demands to take on paid work when family incomes decline while also shouldering household and caregiving responsibilities. To realize just transitions, social protection programs and worker assistance need to take account of women’s needs and concerns. The same is true of indigenous people and ethnic minorities, who often have unequal access to social services, and the decisionmaking processes that help shape those resources.

There is a long history of place-based investment linked to just transitions, with concessional lending and other financing intended to address economic and social concerns in affected regions. But several speakers noted the importance of attracting inward investment and creating good jobs in these regions, rather than merely focusing on social transfers to help vulnerable workers and communities. There are risks associated with place-based investment as well. Companies and policymakers have incentives to pitch projects as mechanisms to achieve just transitions, when in fact they fall short of meeting just transitions principles. This will be a critical consideration for the new Just Transition Mechanism in Europe, which will fund projects that are consistent with EU climate and energy goals.

The scale of the climate challenge means that new financing instruments will be needed to achieve just transitions. Green bonds have proved effective in raising funds for projects with positive environmental impacts, with $258 billion in issuances last year. Countries are also beginning to issue sovereign green bonds, with $56 billion issued to date. But the massive scale of climate finance required to meet the goals in the Paris Agreement—and the imperative to ensure social equity—means that new and diverse tools are required. Sustainability or social bonds could appeal to many socially responsible investors, including pension funds. Blended finance involving the multilateral development banks could also help meet this financing challenge.

Finally, for just transitions to be realized, institutional investors will have to play a key role. The challenge is to delineate the overlap between the environmental, social, and governance (ESG) movement and just transitions. ESG factors are firmly on the agenda for asset managers, but traditionally more focus is given to the “environmental” component. Many asset managers do not yet have the familiarity with the social component at the core of just transition issues to engage in the discourse and help deliver changes. Companies facing ESG pressures are still largely focused on identifying climate risks, enhancing disclosures, and reshaping their investment criteria. But when it comes to specific transactions, investors often lack sufficient details on the associated just transition concerns to inform investment decisions. There is more work to be done in educating investors on just transitions principles and enlisting them in social as opposed to climate-related imperatives. The predominant imperative of maximizing short-term profits, however, suggests the challenges ahead in reorienting economic systems to prioritize social and economic concerns.

The Just Transition Initiative will continue to explore these themes in its research. The next stage of work will focus on case study analysis, including lessons learned from just transitions efforts in a range of countries. The initiative will continue to convene experts to discuss best practices, identify gaps in understanding, and identify more effective tools and guidance on just transitions for policymakers and practitioners.