Grantham Research Institute on Climate Change and the Environment

What is "Just Transition"?

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

Oct 2019

Banking the Just Transition in the UK

This report explores the strategic role that banks could play to support a just transition in the United Kingdom as it pursues a net-zero economy by 2050.

Geographic Scope
Sectors: General
Focus Areas: Government intervention > Public finance, Regulation; Investment > Private finance
Keywords: principles for responsible banking; small and mid-size enterprises (SMEs); housing sector; place-based strategies; risk aversion
By: Nick Robins, Vonda Brunsting, David Wood
Publishing Organization: Grantham Research Institute on Climate Change and the Environment, University of Leeds
Academic/research institution or journal
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.

Report/Guidelines, Strategies and Recommendations

Aug 2018

Towards a Just and Equitable Low-carbon Energy Transition

This paper presents a high-level review of existing literature on energy and non-energy transitions, exploring the distributive consequences of energy transitions and identifying common features of successful transitions.

Geographic Scope
Sectors: Energy
Focus Areas: Economic diversification/restructuring > Economic development plans, Industry and/or sector assistance or plans; Employment > Job creation and/or equality, Skills, Social protections; Government intervention > Carbon pricing; Investment > Competitiveness, Stranded assets; Social and/or cultural impacts
Keywords: energy access; industrial policy; low carbon technologies; distributional impacts; carbon bubble; land management; fossil fuel subsidy reform
By: Ajay Gambhir, Peter Pearson, Fergus Green
Publishing Organization: Grantham Research Institute on Climate Change and the Environment
Academic/research institution or journal
Summary: This paper explores which regions, sectors, and groups could be adversely affected by a rapid low-carbon energy transition and offers lessons from previous transitions that could minimize the adverse impacts of current and future transitions. The authors discuss the broader distributional impacts of low-carbon transitions. These include the effect of higher energy costs on poor and middle-income households due to carbon pricing or the removal of fossil fuel subsidies, the implications of lost fossil fuel-related revenues for specific countries and regions, the impact on regions and workers heavily dependent on carbon-intensive industries, and the potentially adverse consequences of rapidly deploying low-carbon technologies.

The paper presents a high-level review of existing literature on energy and non-energy transitions. While the authors focus on the distributive consequences of energy transitions, they also explore how equitable transitions are achieved. They provide examples and brief summaries of policy mechanisms incorporated in previous transitions. Based on their review, the authors identify common features of successful transitions: foresight and timing, social dialogue and coordination among stakeholders, short-term protections coupled with active government involvement in reindustrialization, and assistance to those potentially impacted by higher energy prices

Guidance document/Guidelines, Strategies and Recommendations

Dec 2018

Climate and the Just Transition: A Guide for Investor Action

This guide provides a framework for investors to further the just transition agenda through their climate strategies and core operating practices.

Geographic Scope
Sectors: General
Focus Areas: Inequality and/or poverty > Other; Investment > Competitiveness, ESG and corporate engagement, Private finance, Stranded assets; Resilience
Keywords: responsible investment; investment strategy; fiduciary duty
By: Nick Robins, Vonda Brunsting, David Wood
Publishing Organization: Grantham Research Institute on Climate Change and the Environment, Initiative for Responsible Investment
Academic/research institution or journal
Summary: This guide was generated as part of the “Investing in a Just Transition Initiative,” a joint program of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science (LSE) and the Initiative for Responsible Investment at the Harvard Kennedy School. This initiative seeks to enable institutional investors to support inclusive economies and sustainable development through their action on climate change. This guide explains the motivations for investor action toward just transitions and describes how investors can apply existing approaches to pursue a just transition in their climate strategies and core operating practices.

Investors can make an important contribution to the just transition agenda as fiduciaries, stewards of assets, allocators of capital, and influential voices in public policy. The authors identify five ways in which investors can incorporate just transition principles into their practices, both as individual institutions and collective initiatives. These approaches include investment strategy, corporate engagement, capital allocation, policy advocacy, and shared learning. The authors provide concrete examples of these approaches and recommendations for next steps.