Investors should expect businesses to create ‘just transition’ strategies for their action on climate change

Posted on 23 Jul 2021 in

Investors need to lay out their expectations for how businesses should achieve a just transition to a net-zero and climate-resilient economy, according to a new report published today (Friday 23 July 2021) by the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at the London School of Economics and Political Science.

The report, ‘From the grand to the granular: translating just transition ambitions into investor action’, by Nick Robins, Sabrina Muller and Katarzyna Szwarc, states: “It is now clear that the just transition is a critical enabling factor for net-zero success and that investors can play a pivotal supporting role.”

The report presents a framework of expectations on the just transition by businesses across seven areas, for use by investors.

The framework includes the creation of “a company strategy and plan for the just transition in the context of delivering net-zero and resilience goals, to be adopted at the Board level with clear Board oversight”.

It also recommends that businesses “incorporate the just transition in remuneration, planning, risk management, scenario exercises and capital investment as well as acquisitions and restructuring”.

It calls for companies to “support consumers (notably vulnerable groups) by ensuring affordable access to key goods and services in the transition and enabling consumers to participate actively in the transition”.

The framework includes ensuring “social dialogue and representation of workers and trade unions in company-level climate decision-making and implementation”.

Commenting on the report, Sharan Burrow, General Secretary of the International Trade Union Confederation, said: “High ambition and just transition are critical to ensure a stable planet for people and the economy. All sectors must transition and just transition plans ensure the trust of workers and their communities vital to achieve the speed and scale that is required.

“Investors have a key role to play in ensuring that all investment has a deep ESG lens and that the companies they invest in have a just transition plan that has involved their workers in the design. This report will help investors play their role by setting out a robust framework based on international standards and emerging practice.”

The report also considers lessons learned from an analysis of how five European power utility companies have been approaching the just transition. The companies are Enel, EDF, SSE, E.ON and ZE PAK.

The analysis concluded that “some of the core foundations are acknowledged”, but “a strategic approach is still emergent”.

It also found that “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 study was funded by CANDRIAM. Naïm Abou-Jaoudé, Chief Executive of CANDRIAM and Chairman of New York Life Investments International, said: “As we transition to a low-carbon economy, the COVID crisis has underscored the importance of social factors. As investors, we recognise that we have a supporting role to play in ensuring that social dimensions are fully integrated into the climate strategies of the companies in which we invest.

“As part of our three-year partnership with the Grantham Research Institute, we are proud to support this first output which will help guide investors on how to consider the just transition within their investment analysis and shareholder engagement.”

Notes to Editors:

The Grantham Research Institute on Climate Change and the Environment was established in 2008 at the London School of Economics and Political Science. The Institute brings together international expertise on economics, as well as finance, geography, the environment, international development and political economy to establish a world-leading centre for policy-relevant research, teaching and training in climate change and the environment. It is funded by the Grantham Foundation for the Protection of the Environment, which also funds the Grantham Institute – Climate Change and the Environment at Imperial College London.

The ESRC Centre for Climate Change Economics and Policy was established in 2008 to advance public and private action on climate change through rigorous, innovative research. The Centre is hosted jointly by the University of Leeds and the London School of Economics and Political Science. It is funded by the UK Economic and Social Research Council.