ESG Club
Peter Mennie, ASIP, is global head of ESG integration and research at Manulife Invest- ment Management
ONLY A JUST TRANSITION WILL ACHIEVE MEANINGFUL ACTION ON CLIMATE CHANGE
Climate change on its current trajectory would be economically devastating, with the greatest impact likely to fall on the poorest individuals, communities and countries. But crucial to achieving con- sensus on climate change action is a fair and equitable approach to its implemen- tation – a just transition that addresses the risk of the costs of addressing climate change falling disproportionately on those unable to afford it. Countries and businesses are implement- ing initiatives designed to curb reliance on polluting through carbon pricing, but these costs threaten a near-term inflation pickup as businesses essentially pay to pollute or, alternatively, invest in the new technology required to
avoid emitting
greenhouse gases, and some politicians have attacked these green taxes as infla- tion bites. While it’s true that taxes on energy disproportionately affect the less wealthy, green taxes that incentivise a shift to sources of low emission energy are crucial to achieving net zero.
When tackling climate change, we need to consider the Sustainable Development Goals, including reducing inequalities and offering decent work and affordable clean energy. It’s also essential to properly appreciate the effects of a just transition on workers, supply chains, communities and consumers if we are to ensure its wid- est possible acceptance because failure to properly transition jobs from high to low carbon risks policy reversal if real action is not taken to develop jobs in renewable industries. A United Nations just transi- tion white paper suggests that companies, industries and state or federal govern- ment could establish and finance public retraining programmes to enable reskill- ing within the context of regional eco- nomic development strategies. Current inequalities are worsened by ris- ing energy prices, which have been exac- erbated by the crisis in Ukraine. By nature, energy expenditure by house- holds is fairly inelastic, which increases pressure on politicians to find ways of reducing prices, making carbon taxes a potential target. And as every industry is pushed to decarbonise, this green revolu- tion might cause short-term costs that further contribute to global inflation. We will all, especially the poorest in our communities, lose in the event of irrevers- ible climate change. But the gilets jaunes protests in France in 2018 served to high- light that solutions to climate change that do not acknowledge the reality of economic inequality are perceived as unfair and are politically impractical. But it’s essential that the global climate change agenda stays the course. We expect all of society to eventually benefit from lower energy costs
PI Partnership – Manulife Investment Management
and an energy supply that does not irre- versibly damage the planet. Green taxes, regulations and tariffs are important components of the transition to clean energy, and investor interest in green, social and sustainable sovereign bonds that direct funding toward the tran- sition to clean energy is soaring. But it will be vital to clarify exactly what green taxes pay for and, as proponents of action on climate change, we have a responsibil- ity to deliver comprehensive messaging about the tangible benefits resulting from the revenues raised. Institutional inves- tors and shareholders can use their influ- ence on global companies to ensure that just transition measures are in place in consultation with workers, communities and unions. Political support is growing, with 46 coun- tries committing to the introduction of national planning to aid a just transition, and 161 investors representing $10.2trn (£7.8trn) in assets have publicly stated their commitment to supporting the PRI’s recommendations for investor action. EU member states have approved a €17.5bn (£14.7bn) Just Transition Fund tar- geting support to regions and sectors most affected by the transition to the green economy. We must replace employment in pollut- ing industries with new, high-quality jobs and incentivise investment and more sus- tainable practices. We must set higher standards. These come with short-run costs, and we must ensure we understand who pays and who gains in a just transi- tion – the crucial prerequisite for building and maintaining public support for trans- formational change.
Read the full article at:
manulifeim.com/institutional/global/en/viewpoints/sustainability
In the UK: Issued and approved by Manulife Investment Management (Europe) Limited. Registered in England No.02831891. Registered Office: One London Wall, London EC2Y 5EA. Authorised and regulated by the Financial Conduct Authority. In the EEA: Issued and approved by Manulife Investment Management (Ireland) Limited. Registered office located Second Floor, 5 Earlsfort Terrace, Dublin 2, D02 CK83, Ireland.
32 | portfolio institutional | April 2022 | issue 112
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