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This post was authored by the Impact Investing Institute.

The Q&A below, with our Programme Manager for International Development David Krivanek, was first published as a Pioneers Post’s article on 27th September 2022.

What does ‘Just Transition’ mean? 

David Krivanek: The concept of a Just Transition refers to a transition to a world of net zero carbon that is inclusive and beneficial to society.

We believe there are three critical drivers of a just transition to a sustainable and inclusive world for all: advancing climate and environmental action (for example, greenhouse gas emission mitigation, reduction and removal), improving socio-economic distribution and equity (for example, inclusive opportunities for decent jobs), and increasing community voices (through, for example, engagement and dialogue with affected communities that are often excluded and marginalised).

The transition to net zero requires huge changes. Unless negative social consequences are mitigated, and opportunities for jobs and communities seized, there will be no widespread public acceptance of these changes. In other words, if it isn’t a just transition, it’s not going to happen.

Unless negative social consequences are mitigated, there will be no widespread public acceptance of these changes… if it isn’t a just transition, it’s not going to happen.

Why and when did this term come into use? 

DK: The ‘Just Transition’ concept originated in circles linked to trade unions and environmental justice action and gained greater recognition when it was incorporated into the historic 2015 Paris Agreement, which was signed by 196 nations.

While many buzzwords and trends focus on driving change in particular areas of the financial system, a Just Transition is a holistic way of approaching a transition to net zero that takes into consideration environmental and social themes and calls on both public and private actors to help mobilise capital to achieve that goal.

The climate action agenda has tended to focus on the changes needed to move to a low-carbon and resource-efficient global economy. While necessary, this narrow approach has led to growing concerns about the potential negative effects of climate actions on society, the global economy and the natural world. It also neglects the huge opportunities for jobs and communities. There is an increasing consensus that a single focus on reducing CO2 emissions to achieve net zero, for example, is not sufficient and that a shift in perspective to also include its socio-economic impacts is essential. A Just Transition approach helps us to consider both our planet and its people equally.

So how do we make a just transition happen?

DK: Public and private organisations need to work together to mobilise capital at scale. At the Impact Investing Institute, we recently launched a Just Transition Finance Challenge, which brings together leading global financial institutions with over £4tn of assets and assets under management, who are committed to financing a just transition. The Challenge is exploring a new ‘Just Transition’ label for public and private asset owners and asset managers that would aim to make it easier to identify investment products that deliver the three critical elements of a Just Transition (climate and environmental action; socioeconomic equity and distribution; community voice). We believe this work will enable investors to put theory into practice, delivering on commitments made at COP26.

A new ‘Just Transition’ label aims to make it easier to identify investment products that deliver the three critical elements of a just transition. 

Why is this particularly relevant to impact investors?

DK: One of the main challenges for impact investors generally has been the variety of investment approaches and opportunities across the spectrum of capital, which ranges from a focus on avoiding harm and mitigating ESG risks to generating positive outcomes for people and the planet. With climate financing gaining traction over the last years, there has been a growing concern that environmental considerations are taken into account without sufficiently incorporating social factors. A Just Transition approach will satisfy the growing demand for sustainable finance products that consider the urgent need to address the climate crisis while mitigating the negative social consequences that come with that and galvanise opportunities for job creation and community engagement. A Just Transition label will provide asset managers with an opportunity for differentiation and, for asset owners, improve market visibility of their investment products that deliver a fair and inclusive transition to net zero.

What are some examples of impact investments targeting a just transition?

DK: AgilityEco, which is a Bridges Fund Management investment, is a leading low carbon, energy efficiency and fuel services provider in the UK. The company addresses fuel poverty and energy inefficiency due to, for example, poor insulation and inefficient boilers. AgilityEco helps energy providers to meet government requirements to reduce lifetime fuel bills for fuel-poor households. Since its launch in 2013, AgilityEco has grown rapidly, supporting over 45,000 households in 2020. In 2020 and 2021, the company helped to install energy-efficiency measures and provided energy advice that reached over 100,000 individuals, leading to an average annual saving of £543 per household served and resulting in lowering carbon emissions.

Another example is ResponsAbility’s Access to Clean Power Fund, which offers debt to companies that provide access to energy in sub-Saharan Africa and south and south-east Asia. The focus is on households without access to electricity and businesses looking for cleaner, cheaper and more reliable energy. By improving access to and the use of climate insurance for micro, small and medium enterprises, for example, the fund aims to serve communities who are particularly vulnerable to extreme weather events as a result of global warming. Thanks to smartphone-based solutions the fund provides energy to 170m people.

How can impact-led businesses demonstrate to potential investors that their work contributes to a just transition?

DK: Impact reporting on best practices that align with the three just transition elements, particularly community voice, is a good start. Organisations can show how they integrate just transition considerations into their purpose or mission, their strategy, decisions, actions and reporting with respect to their products and services, and along their supply chains. Transparency is key when demonstrating to both consumers and investors how social enterprises and purpose-led businesses contribute to a Just Transition. There are several voluntary and issue-specific frameworks that already exist – such as the Global Reporting Initiative, the Sustainable Accounting Standards Board and the Task Force for Climate-related Financial Disclosures – that can be used to report against the three elements of the just transition.