Enabling a Just Transition

Feb 14, 2022 | Articles, Monthly Briefing

Impacts of carbon and pollutant-fuelled climate change are becoming increasingly apparent. To mitigate further catastrophe, companies and policymakers are under pressure from stakeholders, to implement changes that transition the global economy from high to low carbon dependency. Transitioning towards low-carbon systems will have far-reaching impacts on communities around the world, particularly in carbon-industry-reliant regions in the global south.

Policymakers and corporations must promote a just transition towards an environmentally sustainable economy, to mitigate the negative impacts of the change on vulnerable populations. The International Labour Organization (ILO) defines just transition as a process “towards an environmentally sustainable economy”, which “needs to be well managed and contribute to the goals of decent work for all, social inclusion and the eradication of poverty”.

Despite the increasing focus on a just transition, a 2021 World Benchmarking Alliance (WBA) study of 180 companies in the oil & gas, electric utilities and automotive manufacturing sectors, showed that only a minority of companies are engaged with a just transition. A recent survey by Business for Societal Impact (B4SI), found that only half of respondents were discussing just transition within their business, but over 80% agreed that it would impact their long-term strategy development and goals.[1]

At Corporate Citizenship, we aim to provide our clients with the tools to actively participate in a just transition, that ensures that the substantial benefits of shifting towards low-carbon economies are shared widely, while also supporting those who stand to lose economically. While there is no single formula for a just transition, businesses should consider leveraging their unique place in society to incorporate social considerations into risk assessments, include key stakeholders in their decision-making and transition processes, and close the climate finance gap.

Integrating Social Considerations into Risk Mitigation Planning

With increased adoption of the Task Force on Climate-related Financial Disclosures recommendations, climate risk mitigation plans and science-based targets are growing as well. Businesses should begin to integrate their environmental risk mitigation plans with social considerations. Risk mitigation and reducing/eliminating harm are initial steps in the process. Businesses can and should go beyond risk mitigation, and start to think about the good they can bring, and the positive impacts they can catalyse and benefit from. How will the transition to a low-carbon energy source impact the communities in which they operate? Who are the most at-risk stakeholders? Answering these questions will not only allow companies to mitigate risk and reputational exposure, but also identify key stakeholders crucial to the success of their just transition journey.

Incorporating Stakeholders into the Just Transition Process

It is not just high-carbon industry workers who are at risk of being left behind in the decarbonisation transition, but other key stakeholders such as informal workers within their communities, countries and regions, who rely on the revenue, job opportunities and infrastructure indirectly linked to carbon-based industries. This is a particular challenge in coal-dependent regions such as Asia-Pacific, where informal workers account for 68% of the regional workforce and two of the world’s total informal workforce. To overcome these challenges, robust community engagement must be the backbone for a just transition to take place. Without stakeholder input, a company cannot effectively understand the context of its operations, gain stakeholder buy-in, provide the correct resources or create impactful policies. The transition towards a low-carbon economy is an opportunity for businesses to rethink their decision-making process and step-up stakeholder engagement to build lasting corporate and community resilience. Companies must ask themselves if their current transition to a low-carbon economy includes vulnerable stakeholder considerations for a just or regenerative transition.

Closing the Climate Finance Gap

Financing the transition to low-carbon systems will take collaboration and concerted efforts among parties, including states, multilateral agencies and corporate players. During COP15 (2009), developed countries pledged to mobilise $100 billion a year by 2020, to support climate change mitigation efforts of developing countries. This target was not met and analysts argue that even that amount would be insufficient to meet Paris Agreement goals. While states play a large facilitation and policy role in closing the finance gap, companies can play their part, by analysing how procurement decisions, power purchasing agreements and overall purchasing practices may amplify positive impacts in under-resourced communities. While this may seem like a daunting task, interventions such as training programmes and funding local incubator challenges can position companies to drive climate innovation and increase resilience in the most vulnerable areas of their operations. Additionally, companies can advocate for policies that support climate transition efforts, and align their political contributions to this end.

The transition towards a low-carbon economy presents a pivotal opportunity to leverage the power of business as a force for good. To make the most of this opportunity, we have introduced three key elements to consider when starting or assessing your just transition process: 1) including social considerations in environmental risk mitigation planning, 2) maintaining meaningful stakeholder engagement through the process, and 3) contributing to closing the climate finance gap. Delivering on the promise of a sustainable future, requires that businesses take their role seriously in including those from historically disadvantaged or otherwise marginalised communities to participate in new opportunities.

[1] Business for Societal Impact (B4SI), part of Corporate Citizenship, hosted its annual conference in November 2021. During this event, a survey asked participants their perception of a just transition.