When it comes to moving to a net zero or decarbonised economy it is hard to argue against a ‘just transition’. The alternative, after all, is an ‘unjust’ one.
Last month the G20 New Delhi Leaders’ Declaration dutifully affirmed “that no country should have to choose between fighting poverty and fighting for our planet. We will pursue development models that implement sustainable, inclusive and just transitions globally, while leaving no one behind”.
Unfortunately, there are good reasons to question how ‘just’ the just transition will be. It seems that many asset owners are not even aware of the just transition concept; and that most of the world’s largest emitting companies have been doing very little to support a just transition. On top of that, there is no consensus on what a ‘just transition’ actually entails.
Asset manager Fidelity recently surveyed over 120 institutional and intermediary investors across Europe and Asia to find out what a just transition meant for them. The survey found that the concept of just transition was familiar to only 42 per cent of them.
When ‘just transition’ was explained, 91 per cent “believed it would have a positive impact on risk/return profiles in the long term”. But Fidelity noted “investors also revealed a lack of conviction that, as a society, we are likely to achieve a just transition”. According to the survey, 43 per cent of respondents suggested a just transition was unlikely.
This month Climate Action 100+ released its latest performance assessment of 150 of the world’s largest greenhouse gas emitters. Its Net Zero Company Benchmark 2.0 concluded “corporate commitments to Just Transition lack ambition” with only 24% of companies committed to transitioning.
Just 10 per cent currently disclose a just transition plan and only 3 per cent of the focus companies developed plans in consultation with stakeholders. Only two companies supported their plans with quantifiable KPIs.
Climate Action 100+ also earlier revealed that of the 14 heavy-emitting Australian companies assessed by the Benchmark, 10 failed to meet the Just Transition criteria. The other four (AGL Santos, Origin Energy and South32) only partially met the criteria. “Australian companies need to significantly improve their planning for mitigating the impact of their decarbonisation efforts on their workers, communities and other key stakeholders,” it said.
Climate Action 100+ says asset owners and managers should be insisting companies adopt robust Just Transition policies and plans that account for the impact of their decarbonisation strategies on workers, communities, and other key stakeholders. It is hard to disagree with this advice.
The World Benchmarking Alliance (WBA) also recently assessed 450 of the world’s most influential companies in high-emitting sectors on what they are doing to respect the rights of workers, communities and the most vulnerable as they work towards low-carbon goals.
Its latest Climate and Energy Benchmark found only a minority of the 100 large oil and gas companies assessed “are engaged with necessary preconditions for a just transition, if undertaking a low-carbon transition at all”. WBA said 93 per cent of the companies scored zero on the ‘just transition planning’ sub-indicators.
WBA’s Climate and Energy Benchmark in the buildings sector revealed “a striking and systemic lack of action by companies to prepare for and mitigate the social impacts of decarbonising. Alarmingly, all companies score 0 on just transition planning”.
All these findings suggest asset owners and managers may need to do some serious soul searching about the quality and effectiveness of their corporate engagement and ‘active ownership’ strategies.
Climate Action Network International (CAN) says “the concepts of just transition, just energy transition, just and equitable transition, etc, are being used more and more often, sometimes interchangeably, and with different intentions. CAN says “it can also be a disingenuous way to avoid talking about a fossil fuel phase out”.
Sydney Environment Institute’s (SEI) Towards a Just Transition from Coal in Australia? report says there “is a sense that it is easy to pay lip service to the just transition concept but very hard to achieve in practice, and those doing the talking are not the ones who will suffer.
“Unions express concern that statements about just transition are just PR-speak in company announcements rather than reflecting a genuine intention to help those affected”.
The SEI report also noted “most renewable energy jobs are in construction, with the labour for long term maintenance for solar panels described by one interviewee as ‘two guys and a dog in a ute’. Construction projects have limited timescales and renewable projects are not necessarily in the same locations as coal projects”.
University of Glasgow’s recent Legal Challenges to Just Transitions report says “just transition is less developed as a concept and policy framework than some other elements of sustainability”. The report notes how complex and challenging the concept is. “just transition goes beyond the conventional understanding of ESG as a financial standard and practice by extending the ‘social’ dimension to encompass outcomes that respond to local needs and community participation”.
The university’s report says while the transition “must be rapid, in the context of the climate emergency” developing “just transition frameworks can be time consuming”.
For just transition to be successful, “this dichotomy between social justice and a need for rapid implementation of climate-friendly policies would need to be challenged and the interrelatedness of the two elements emphasised – ‘environmental transition is not possible without correlating social transition’” the report said.
This is food for thought for asset owners who may need to think a little more deeply about what a just transition means and how they can broaden the scope of their engagement beyond their asset managers and investees.
Net Zero Authority
The lack of progress on a just transition also places a lot of pressure on the Federal Government’s proposed national Net Zero Authority (NZA). The government says “as traditional industries adapt and transform, the authority will work to ensure new industries are coming online, and workers, communities and regions are supported”. The NZA is also meant to “help investors and companies to engage with net zero transformation opportunities”.
Asset owners will be hoping the NZA will be up to the task because as the Australian Council of Superannuation Investors (ACSI) says “as universal owners of capital, institutional investors cannot fully diversify away” from the impacts of a poorly managed or unjust transition.