Our key takeaway: Financial institutions have a key role to play not only in enabling the shift to a net zero economy, but also in ensuring that transition is just for workers, communities and consumers. Banks and investors increasingly acknowledge the centrality of this just transition, and many are now committing to action. Yet there remains a long way to go in translating these commitments into results. In particular, financial institutions have a responsibility to ensure their net zero plans reflect the just transition by building in a people-centred and rights-based approach to the delivery and implementation of those plans. These institutions must understand and effectively respond to the social risks and opportunities for people affected by their plans.
The Grantham Research Institute on Climate Change and the Environment has published “Making Transition Plans Just: How to Embed the Just Transition into Financial Sector Net Zero Plans” (October 2022). It offers a guide for financial institutions on “how they can incorporate consideration of the social dimension of climate action – in other words a just transition – within their net zero transition plans”:
- The just transition imperative: The report insists that the just transition is “not a ‘nice to have’ after thought”. It therefore cannot be separated out from the net zero transition: “There can only be one transition and it needs to be just”. The report argues that the just transition is “right, necessary and smart”. It is ‘right’ from the perspective of social justice and fairness; ‘necessary’ to build public trust and ensure positive engagement rather than resistance to climate action; and also the ‘smart’ way to build strong and resilient economies. The report makes the fundamental point that “Net zero is a goal that is designed for people and has to be realised by people”. The concept of just transition is thus critical in overcoming the “longstanding marginalisation of social factors in climate policy and climate action”.
- Three key just transition factors for financial sector net zero plans: Financial institutions have a responsibility to ensure their net zero plans reflect just transition principles (e.g., those from the International Labour Organisation). Indeed, the report finds that supporting just transition is part of their fiduciary duty. Yet while the importance of just transition enjoys growing recognition in the financial sector, there is more work to do in “translating recognition into results”. The report identifies three key factors that financial institutions should incorporate in their plans. They must: (1) anticipate, assess and address the social risks of the transition; but also (2) identify and enable the social opportunities of the transition; while (3) ensuring meaningful dialogue and participation in net zero planning. These three factors “respond to the frequently used distributive justice, procedural justice and restorative justice dimensions of the just transition”. More foundationally, however, all three are grounded in existing international human rights commitments, labour standards and sustainable development goals. In short: “If net zero needs to be science-based, the just transition needs to be rights-based.”
- Integrating the just transition into each part of a net zero plan: The report builds off the emerging net zero transition planning framework of the Glasgow Financial Alliance for Net Zero (GFANZ). It offers guidance, specific recommendations, and best practice examples tailored to each of the five core themes of that framework. First, on foundations, the report unpacks how the just transition can be infused into the overall approach to net zero and across different financing strategies. Secondly, it gives recommendations for integrating just transition with net zero objectives into a unified implementation strategy. Third is the engagement strategy: how just transition can be embedded into practices of dialogue and advocacy with various stakeholders. Just transition must be included, fourthly, into the suite of monitored metrics and targets so financial institutions can evidence the effectiveness of their actions. Finally, the report offers recommendations for integrating the just transition into governance structures to oversee, incentivise and support the implementation of net zero plans.