small and mid-size enterprises (SMEs) – Just Transition Initiative

Summary

As the largest part of the United Kingdom’s financial system, the banking sector must help mobilize the quantity and quality of finance needed for the country to achieve its goal of a net-zero economy by 2050. This paper examines how can banks can best respond to the social opportunities and risks from the transition to a resilient net-zero economy, calling for banks to see the challenge as an opportunity to renew their social license to operate.

The authors argue that the main way banks can help achieve a just transition is by supporting their customers and clients. This means understanding the requirements of different customer segments (particularly under-served segments), the barriers they face, and the financial solutions that could enable them to succeed in the transition. The authors examine the specific needs and challenges of banks’ customer groups, specifically individuals/households and small and medium-sized enterprises (SMEs). They also emphasize the need for place-based action and suggest that locally rooted banks and financial institutions can help “anchor” transition efforts.

They conclude by emphasizing the need for a policy framework that provides policy and market incentives for financing just transitions and for fostering broader systems innovations. Among other things, these innovations should help establish the necessary capital mix for a zero-carbon economy and address the traditionally risk-averse attitude of financial institutions.

Summary

“Based on a critical review of former transitions, the authors distill seven basic principles for ensuring just transitions: actively encourage decarbonization; avoid creating carbon lock-in and more “losers” in these sectors; support affected regions; support workers, their families, and the wider community affected by closures or downscaling; clean up environmental damage and ensure that related costs are not transferred from the private to the public sector; address existing economic and social inequalities; and ensure an inclusive and transparent planning process.

These principles highlight the importance of supporting affected workers but place equal emphasis on ensuring environmental protection and restoration, diversifying industry and other economic activities, and tackling socioeconomic inequity (including gender inequality) in an active pursuit of decarbonization. The authors offer recommendations on how to implement each of these principles, arguing that the justness of a transition comes from pursuing each of these principles simultaneously and that failure to do so will result in a lack of necessary social and economic support. “