Why the net zero transition needs to be a just one for all
The just transition is about ensuring that the transition to a net zero world is globally inclusive and socially beneficial, without leaving anyone or any place behind. Just transition finance is integral to this: investments that facilitate the transition to a net zero future while considering the impact on people, societies, livelihoods, health and living standards.
In this context, impact investing is about managing investments so as to mitigate potential negative impacts of the transition to net zero, and to optimise the opportunities for positive impact.
For example, decarbonisation efforts require investments into clean energy, transport and industrial decarbonisation. It is vital that these investments consider social outcomes and generate quality employment, equal access to energy and transport, and improved health outcomes for affected communities. Similarly, ecosystem resilience and regeneration requires investment into flood defence mechanisms and climate-friendly agricultural practices, but such investments must benefit local communities – for example, in terms of health and socio-economic outcomes.
Recent history can teach us important lessons. The inequality still suffered by former mining communities in the UK demonstrates how communities can be left behind for generations if the transition is made without investing in a replacement. There was also a lack of necessary training and infrastructure for the people who had depended on it.
The links between environmental disaster and social disaster are inextricable. Much more private capital needs to be deployed in order to achieve a just transition globally. While this financing gap is present in all economies, it is particularly acute in the global south – where environmental disasters like drought are causing social disasters like mass migration, social unrest and starvation. Investment in solutions to these problems, with all communities in mind, is absolutely essential.
Investment in the UK means investment in the economies of the future, which means investment in the skills and infrastructure that are going to deliver them. As we approach COP26 and adapt to Brexit and the effects of the pandemic, the conversation is more alive than ever.
At the Impact Investing Institute, we have been working to highlight the need for just transition considerations in climate policy and finance. Our Green+ Gilt proposal, launched in collaboration with the Green Finance Institute and the London School of Economics’ Grantham Research Institute, emphasises the strategic potential for green sovereign bonds to scale countries’ efforts towards becoming net-zero carbon economies with well-defined social and economic benefits.
We welcomed the announcement that the government’s upcoming series of sovereign green bonds will include reporting on social co-benefits – and are glad to support the government as it designs its innovative green gilts and green retail savings bond. The UK has an opportunity to develop something truly innovative and impactful in an area of finance that is experiencing exponential global growth.
The focus from here is: what does all this really mean in practice, in terms of investments and real-world outcomes? And beyond the green gilt and the UK, how do we leverage the power of private investment towards just transition outcomes globally? What are the most pressing sectors and places in which action needs to be taken, and which present the greatest opportunities? Which investors are interested in which sectors, places and outcomes, and how can they be combined for the greatest impact?
Answering these questions is a huge challenge, but we’re excited to continue our work with the UK government, market participants and our wider supporters to clarify exactly what is meant by the ‘S’ in ESG.
Read more from Bella Landymore in our latest Pathway to COP26 article, ‘Beyond the green: The changing face of sustainable finance’, on pages 32-34 of the Spring 2021 issue of Chartered Banker magazine.