ESG Feature – A just transition


a plan to finance the transition,” Niklasson says. A pathway


There is almost no part of the global economy that is going to be unaffected by the energy transition. Nick Stansbury, LGIM


Despite investors working to find their feet on this issue, one point is clear. “From a just perspective, the best thing to do as an investor is not to abandon the sector,” Niklasson says. “It would be socially irresponsible to make it harder for com- panies to turn themselves around,” she adds. “The cost of cap- ital is affected if the investment community withdraws from it. “Countries need capital to transition, to re-train communities and figure out what an employment system would look like in a world where the energy system is relying on more skilled labour. We need to invest in education to ensure that people can support that system.”


(Not) everyone’s a winner! But it is still early days and the just transition is uncharted territory.


“There is not yet a good enough understanding among the general investment community about what a just transition means,” Niklasson says. “We know that it is important, and that there are deep social and economic impacts to consider but knowing what a good transition looks like is tricky. “There will be trade-offs,” she adds. “Not everyone is going to be a winner in this transition.”


And emerging economies could be big losers due to their high dependence on the sectors net-zero plans are targeting. South Africa is an example of where a just transition could be a challenge. “It has a challenge ahead in terms of the transi- tion itself in weaning the country off fossil-fuel intensive industries, but there is the added challenge of already high levels of poverty.


“If investors stop financing the current set-up you risk cutting the lights off for millions of people. What needs to happen is


28 | portfolio institutional | April 2022 | issue 112


It is understandable that investors are following strategies that they believe will deliver a positive environmental impact while benefiting society. Jeavons points to the two elements needed to achieve a just transition. “First, you need to understand the risks from the transition and how that will impact social priorities. “Second, you need coherent policies and market frameworks that incentivise investors to support the just transition. “To achieve the rapid change needed to reach net zero, it needs society’s backing,” he adds. “This means making sure that the substantial benefits from the transition to a low carbon, sus- tainable economy are shared widely, and those that are nega- tively impacted economically are given the support they need to make a just transition.” Jeavons says that at COP26, in a first of its kind agreement, South Africa will receive around $8.5bn (£6.4bn) from the US and countries in Europe as part of a “Just Energy Transition Partnership”. “This aims to accelerate South Africa’s green transition but some of the money will be investments in social infrastructure, to manage labour and support workers impacted by the transition. “For example, the 90,000 miners involved in coal extraction will be helped to find other industrial roles or education pro- vided to re-skill and work in other areas, such as renewable energy,” he adds. But a just transition cannot happen unless governments, reg- ulators, companies and investors have wider support. “If you want a circular economy instead of a resource-inten- sive economy, you need to have society on board,” Jeavons says. “Take the energy transition. Going from wood to coal and from coal to oil took 100 years. We are trying to change our energy systems within a couple of decades or so. That is a real challenge that is bound to throw up destabilising elements in the economy and within society. Managing the bumps in the road means you will ensure the economy remains dynamic and performs well, which will be positive for your investments,” he adds.


A holistic approach But keeping temperature rises low and stopping the flooding and extreme storm patterns we are seeing around the world will not be solved by no longer burning fossil fuels. There are more proactive measure investors can take. “We have to take a holistic approach by reducing our negative impacts on the planet and increasing our positive impacts,” Kinder says. “The handprint has to be larger than the carbon footprint.”


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48