ESG Feature – Low carbon transition
pots of private capital in this area. Earlier this year, it amended the Pension Schemes Bill by setting recommendations and potential requirements around environmental disclosures linked to a scheme’s investment portfolios.
A just cause
If we are not careful, by decarbonising the country too quickly we may reduce temperatures and improve air quality but destroy communities. “The 2050 target is highly ambitious and there is going to be pain along the way,” says Tom Atkinson, a utilities analyst at Newton Investment Management.
There is a social cost of eradicating carbon from the atmos- phere. Jobs disappear when coal-fired power stations are switched off or we stop pumping oil out of the ground. Indeed, the European Union has proposed a similar net-zero emissions law to the UK’s, and so 450,000 jobs in mines, coal- fired power stations and related services across the bloc are un- der threat. There are whole communities relying on industries that are heading for extinction. The European Commission has cited a nameless region in Poland that could see 41,000 jobs disappear if the transition is successful. There is a social element to ESG and as such the transition should not just be about stopping climate change but provid- ing decent jobs to protect local communities, too.
Trade unions are campaigning for a “just transition” to protect workers’ livelihoods as the world moves to more sustainable energy sources. The goal is that as well as being greener, socie- ty will also be more inclusive. O’Neill says that you need to take people with you, not leave them behind. “We need to have a just transition; in that it is socially equitable as well as being economically feasible. “Adhering to that would mean that there is consideration given to those in society who might be at risk if it is not financed in a just way,” she adds. But RobecoSAM’s Roland Hengerer points out that perhaps one need is much greater than the other. “The choice will be between some economical local damage or global damage to 8 billion people,” he says.
That is a powerful argument, but the transition doesn’t have to be so black and white. Technological advancements make some processes or industries redundant, but they also create new jobs. So re-training old economy workers into new econo- my workers should be part of the transition. “That is a policy challenge of how we re-train the workforce to participate within the energy transition and in the technology- enabled economy,” says John Anderson, global head of corpo- rate finance and infrastructure at Manulife Investment Management.
The 2050 target is highly ambitious and there is going to be pain along the way. Tom Atkinson, Newton Investment Management
This is already happening. The offshore oil and gas industry in the North Sea is not as big as it was, but offshore wind in the area is growing. There are transferable skills here as engineers who once worked on oil rigs now service windfarms. “Rigs closing is causing pain, but on the flip-side there is growth in newer industries,” Atkinson says. Such a change in how some people do their job is no different from carriage drivers having to deal with the advent of the car, Lees says. “It is a natural progression and hopefully govern- ments can smooth it out so it is not too much of a shock for any locality, but they cannot deny that change is coming,” he adds. Energy company Drax is working towards a just transition. When it closes two coal-fired power plants in North Yorkshire in the next two years 230 jobs will close with them. To help with the transition, Drax has established a zero-carbon skills taskforce to build a workforce that is ready to reap the rewards of a net-zero economy in the region.
Come together “When Theresa May came out with these objectives for 2050, an internal government report estimated the cost at £1trn, which is just under half of UK GDP,” Sheehan says. “You can- not hold these numbers with certainty because there are so many evolving parts.” Yet the hit to the economy of not transi- tioning could be even higher thanks to countless climate change induced environmental disasters, such as floods and
28 | portfolio institutional April 2020 | issue 92
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