The Global Governance Project published Financing a Just Transition: Transforming Funding, Tackling Climate Change (November 2024). The publication is a compilation of brief expert insights on key topics around financing a just transition to a sustainable economy. The authors range from Heads of State, to leaders of UN and multilateral organisation, to economists and policy experts. Together, the insights showcase existing efforts to close the finance gap, how policy innovation has led to credible progress and the road ahead. Key topics include achieving adequate and ambitious climate finance, the Paris Agreement platform, improving public finance, mobilising private sector finance and improving its integrity, and innovative technologies and climate financing approaches. Below, we’ve pulled out key insights from three pieces that drill down on the needs of a just transition and where the private sector fits in.
Human Level’s Take
- In the Just Transition Finance Lab’s compilation of insights on financing a just transition, experts across sectors and across the globe are making it clear: a green transition and a just transition are not separable. The success of the transition to a more sustainable future relies on bringing along people — those who could be left behind and those who will help build this future.
- Three fundamental points stand out as companies and investors contemplate the future of their business amidst the rising operational, financial, reputational and political pressures of the just transition.
- First, flows of capital to the most vulnerable regions and people are needed to build a transition economy that is both global and fair. This means that human rights and environmental due diligence will become more important than ever as companies develop and implement their climate transition plans. We know that this is no longer a ‘nice-to-have’; the EU Corporate Sustainability Due Diligence Directive (CSDDD) and Corporate Sustainability Reporting Directive (CSRD) explicitly call for an integrated approach to climate mitigation and adaptation, and other stakeholders of companies are likewise calling on the private sector to fulfill the expectations of a just transition.
- Second, the failure of so many banks and companies to adopt a just transition approach in their activities and in their financing suggests that the right stakeholders are still not at the table. Companies and investors can apply the standards of human rights due diligence to identify the people who are both most at risk of impact and have the most direct insights from the ground that could help identify where and how capital is needed. Empowering rightsholders is also a matter of involving other stakeholders who can partner to bring a just transition to life, like trade unions and workers’ organisations, and civil society organisations, elevating the perspectives of the people who are at the frontlines of the climate crisis.
- Third, our survival as humans is literally at stake here. Experts are ringing the alarm bells in every direction, and while some governments are stepping up to take action that requires private sector change, many others lag behind. Companies and investors drive greenhouse gas emissions simply by virtue of doing business, and this means that our current economic system of ‘business as usual’ could spell a dire future for all of us. But this also means that companies and investors hold many of the keys to the castle. Implementing science-based climate transition plans, embedding robust human rights and environmental due diligence into climate mitigation and adaptation efforts, and using leverage with other influential actors — from peers, to business partners, to governments, to public sector financial institutions — are within your ability and in your hands.
For More
- “Countering the greatest crisis of our time” (John Kirton, Global Governance Program):
- The author points to the urgent need for climate finance to address the climate crisis ahead of COP29 in Baku this November. This is the key opportunity for global leaders and stakeholders to take bold actions to mobilise substantial financial resources for a just transition.
- But the scale of the climate finance challenge is growing, exacerbated by recent economic and political factors. There remains a significant funding gap for climate mitigation, adaptation and clean infrastructure, particularly in the Global South. What’s more, emerging markets face high capital costs due to high interest rates, making it difficult to secure funding. What’s the scale of the challenge? To meet the goals of the Paris Agreement, the Independent High-Level Expert Group on Climate Finance estimates that developing countries (excluding China) need over US$1 trillion annually, with most funds required for mitigation efforts.
- The author emphasises the critical role of the private sector in bridging this gap. Even with the full commitment of multilateral development banks, only a small portion of the required capital would be covered — creating an opportunity for the private sector to step up. With global financial assets totaling US$410 trillion, mobilising just 1.4% of the private sector could close the gap.
- Why should business care? Climate finance is projected to become a trillion-dollar market by 2030, presenting both a significant challenge and opportunity for policymakers and businesses alike.
- “Transforming the financial system: an inclusive, people-centred approach” (Nick Robins, London School of Economics and Political Science):
- Achieving a just transition requires placing people at the heart of climate action, with a focus on equitable financial flows and social outcomes, especially in the Global South. While awareness of the need for a just transition is growing, the author points out that the challenge is re-channeling existing financial resources to meet climate goals while improving social conditions. This includes expanding clean energy jobs with decent working conditions, ensuring universal energy access and addressing social risks, such as the displacement of workers as fossil fuels are phased out.
- To do this effectively, inclusion needs to be a core principle, and those affected by the transition must be involved in decision-making through social dialogue, stakeholder engagement and consent from Indigenous communities. Ultimately, without fairness the transition will not succeed globally or in any sector.
- However, while the global financial system — holding $450 trillion in assets — has begun to acknowledge the just transition, actual financing for such a transition has been slow. Some countries, like the U.S., have linked fiscal incentives to job creation and community benefits, while countries like South Africa, Indonesia and Senegal have begun forming partnerships. Still, developed countries' public and private finance has been lacking.
- A bright spot is that some institutional investors have made the just transition a key part of their net zero expectations. However, as of 2023, only a small fraction of high-emissions-intensity companies have released plans incorporating stakeholder involvement, and no major banks have fully committed to decarbonising in line with just transition principles.
- Furthermore, in the developing world, financial flows are heading in the wrong direction, exacerbating debt and limiting the ability to enact just transitions, especially in Africa. Addressing these structural inequalities requires a transformational, systemic approach that integrates public, blended and private finance.
- Per the author, to meet a just transition the three key priorities for COP29 include: some text
- 1. Agreeing on a new collective goal to provide adequate, accessible and affordable finance for net zero, resilience and loss and damage in emerging markets. Developing countries need US$1 trillion annually by 2030 — much more than the current US$100 billion target.
- 2. Ensuring that the just transition is central to national climate contributions, with clear policies to support industrial and labor market transformations, skills development and social protection.
- 3. Mainstreaming the just transition into the practices of business and financial institutions to build trust and the human and social capital needed for a sustainable, resilient economy.
- To meet these priorities, integrating the social dimension into climate transition plans is crucial, and some regions like the UK and EU are moving toward mandatory publication of these plans. The author points out that, while global cooperation on financing the just transition may seem daunting amidst fragmentation, on the flip side it can be seen as a unifying force, linking climate action with essential social needs.
- “Are corporations allocating capital towards climate action?” (Shafaq Ashraf and Sangeeth Selvaraju, Grantham Research Institute on Climate Change and the Environment):
- From the authors: Corporations are at the heart of the climate crisis, contributing significantly to global carbon emissions. The top 150 polluting companies account for over 80% of global emissions, making their transition to cleaner technologies and processes essential for meeting net-zero targets by 2050. This transition must also be socially responsible, protecting vulnerable populations and creating new employment opportunities, without deepening social inequalities.
- Yet, while data from the Climate Action 100+ Net Zero Company Benchmark 2023 reveals that there is growing investor pressure for companies to decarbonise, their actions on a just transition and social responsibility are still in the early stages.
- The Climate Action 100+ initiative tracks corporate capital expenditure in three areas: (1) Brown investments, i.e., capital spent on carbon-intensive assets with no plans for carbon removal. (2) Green investments, i.e., capital spent on climate solutions, ideally defined by formal classification systems. (3) Future green investments, i.e., planned spending on future climate solutions.
- Out of the 150 companies scored in the benchmark, only 28 disclosed spending on carbon-intensive assets, 44 reported spending on green investments, and 48 disclosed future green investment plans. The authors highlight the need for more consistent and comprehensive reporting given the overall lack of transparency in capital expenditure, particularly in brown assets.
- The data also shows that while some progress is being made in green investments, overall transparency and action remain insufficient to meet global climate goals. For a successful transition to a low-carbon economy, companies must not only increase current investments but also disclose clear, long-term strategies for future green investments.
