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The crucial context for the Just Transition is a need to decarbonise the global economy at an unprecedented rate.

The Just Transition

Carlota Esguevillas Carlota Esguevillas RI Analyst
RI expert briefings

The Just Transition

Carlota Esguevillas


RI Analyst

The just transition

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The crucial context for the Just Transition is a need to decarbonise the global economy at an unprecedented rate. In this RI Expert Brief, we explore what the Just Transition means in practice, why it is so important, and our approach here at EdenTree.

WHAT IS THE JUST TRANSITION?

The Just Transition is an idea that emerged out of trade union movements, has been advocated by environmental justice groups, and has resonated across the political spectrum. So much so that COP 24 in Katowice, Poland, was dubbed the ‘Just Transition COP’ by many involved and more recently, over 30 nations, including the UK, signed a Just Transition Declaration at COP26. Just Transition thinking has also permeated national policy, with the UK’s Levelling Up Strategy – although not explicitly – clearly drawing on elements of a Just Transition. The term now represents a host of strategies to transition communities and build thriving economies that provide dignified, productive and ecologically sustainable livelihoods.1

The crucial context for the Just Transition is a need to decarbonise the global economy at an unprecedented rate. The transition to a net-zero carbon economy has to be deep, broad, and rapid if we are to avoid truly catastrophic global heating and irreversible climate change. Any delay in reducing emissions results in an ever steeper pathway to net-zero by 2050.

The Just Transition is about doing this in a socially just and equitable manner.

WHO WILL BE AFFECTED BY THE JUST TRANSITION?

Most commentaries on the Just Transition focus on technological switching (fossil fuels replaced by renewables for energy generation and transport, for instance). This has resulted in a focus on the fossil fuel industry in many analyses, but there has also been some work done on Just Transitions in other key sectors, such as agriculture.2

Whilst technological change is going to be important to the transition, it is also likely that, to achieve the necessary emissions reductions in the short space of time we have, there will need to be a marked shift away from the type of non-essential consumerism that has taken root in many wealthy nations. Societal norms will probably have to alter in quite profound ways, with a rise in product and service sharing, less material-intensive lifestyles, greater leisure time, and so on.3 In this sense, the transition may impact everyone in some way.

With respect to the UK, analysis conducted by the LSE’s Grantham Institute and its partners has focused on the East Midlands, West Midlands, and Yorkshire and the Humber, as three regions with the highest proportion of jobs that could be exposed to the transition. Their work has highlighted the risks and opportunities with respect to a localised Just Transition in these regions, and outlined some case studies of placebased transitions (e.g. the Siemens-Gamesa wind turbine factory in Hull).4

WHAT IF THE TRANSITION ISN’T “JUST”?

Key proponents of the Just Transition have stressed that, unless the rapid shift to a low-carbon economy is socially equitable, or if it threatens the welfare and prosperity of the sections of society most likely to be impacted by it, then the transition itself may falter due to lack of social and political support.

A good example of what can happen if this social equity element is missing from transition or climate policy can be seen in France. Since 2018, the Gilets Jaunes, or ‘Yellow Vests’, have clashed with the French government, over, among other things, a tax increase on fuel, the proceeds of which were intended to fund a low-carbon energy transition in the country.5

Similarly, Australian coal miners have been vocal in their opposition to climate policies which would destroy their jobs and livelihoods, without adequate compensation. The defeat of the Australian Labour party in the country’s 2019 general election has been attributed in part to lukewarm promises to mining communities. The party promised the establishment of a ‘just transition authority’, but no finance for restructuring the economies of coal-dependent states and communities. If political parties’ proposed climate policies do not offer a brighter, alternative future to ‘at-risk’ workers, it should not be surprising if they do not win their votes.6

By contrast, there are already some examples of more successful transitions. Starting in the mid-1990s, the city of Gelsenkirchen (in Germany’s Ruhr region), transitioned from a reliance on the mining industry to other alternative activities by building a science centre specialized in developing new technologies on both energy efficiency and the use of solar energy and clean fuels. A report released in 2017 noted that upwards of 26,000 jobs had been created through the transition period, and the region has grown into a “large student and research hub”.7

A GLOBAL PERSPECTIVE

Whilst recognising that domestic political issues are paramount, the Just Transition has to be a global effort – the ‘greening’ of wealthy nations in the Global North cannot be at the expense of the Global South. This adds a further layer of social and racial justice to the transition.

Many low carbon or ‘environmental’ technologies – from electric vehicles to energy storage devices – rely on rare minerals, many of which are found in developing countries.8 Unless we can factor global socio-economic equity into the Just Transition, we risk a wave of resource extraction, land-grabbing, human rights abuses, and local environmental destruction across the Global South in the race to decarbonise the Global North through technology.9

This is also beginning to come home to roost in Europe. In Portugal, for example, mining companies seeking to exploit the country’s lithium reserves are “locking horns” with local communities.10 Lithium, which is used in smartphones, electric vehicles, and energy storage systems, will be a key strategic mineral in the low-carbon transition. However, the environmental costs of its large-scale extraction across South America have been well documented11, even if they are not that widely known, and similar drawbacks cannot be overlooked in Portugal’s case.

One way to limit the impacts in terms of raw material extraction is to change some of the norms of societies in the Global North, and socioeconomic equity has to be at the heart of this. The ‘everyone can own a Tesla’ approach to ‘solving’ transport emissions, for instance, is fundamentally flawed. We touched on this in our Road Transport EdenTree Insight12, where we reflected on the need for greater use of public transport, walking and cycling in decarbonising transport systems. Where mining is undertaken across the globe to provide the minerals required for low-carbon technologies, it is imperative that:

  1. local communities provide free-prior and informed consent;
  2. that they, not distant shareholders, are the principal beneficiaries, and; that
  3. local environmental impacts are minimised and thoroughly remediated.

WHAT IS EDENTREE DOING?

Across our range of equity and fixed income Funds, a Just Transition is integrated across all our screening and engagements on climate change. In practice this means ensuring the involvement of, and support for, those potentially impacted in company’s decarbonisation plans – particularly in high impact sectors. In addition, we also manage an institutional Just Transition segregated strategy, where just transition thinking is integrated into every investment decision.

One of the biggest hurdles for investors is obtaining adequate data from companies to be able to say with confidence that they are contributing to the Just Transition, particularly on social indicators. This is a challenge across many sectors, and is something on which we actively engage through initiatives such as the Workforce Disclosure Initiative (WDI) and the World Benchmarking Alliance’s (WBA) Just Transition Benchmark. We are also members of LSE’s Financing a Just Transition Alliance, which seeks to identify concrete steps we can take to further scale up climate action that also delivers positive social impact.

A further conundrum for mainstream equity investors is how to gain exposure to (or directly finance) place-based transitions.

One way around this problem may be through debt instruments, with specific use-of-proceeds outlined. A flourishing market in ‘green’, ‘social’, and ‘sustainability’ bonds is making it easier for investors to achieve a focused, occasionally project-specific exposure to elements of a Just Transition. Care is needed in analysing the use-of-proceeds and the quality of the issuer, but it is an area in which EdenTree is increasingly active.

Sources

  1. Climate Justice Alliance
  2. Action Aid. (2019) Principles for a Just Transition in Agriculture; accessed online 21.02.2020
  3. See, for instance, Jackson, T. (2017). Prosperity without Growth: Foundations for the Economy of Tomorrow, 2nd ed., Routledge, London; Raworth, K. (2017) Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist. Random House, London; and Trebeck, K. & J. Williams (2019). The Economics of Arrival: Ideas for a Grown Up Economy. Policy Press, Bristol.
  4. London School of Economics, Principles for Responsible Investment, Trade Union Congress & University of Leeds (2019). Policy brief: Investing in a just transition in the UK.
  5. Morena et al. (2020). Just Transitions: Social Justice in the Shift towards a Low-Carbon World. Pluto Press, London. p.3
  6. Mathiesen, K. (2019). ‘Australia’s coal communities, ignored by Labor, deliver brutal election defeat’
  7. Mustata, A. (2017). ‘Eight steps for a Just Transition’. Bankwatch Network, p.8
  8. Coulomb, R., S. Dietz, M. Godunova, and T.B. Nielsen (2015). ‘Critical minerals today and in 2030: an analysis for OECD countries’, Environment Working Paper No.91, ESRC Centre for Climate Change Economics and Policy, Grantham Research Institute on Climate Change and the Environment.
  9. We have written elsewhere about the conditions in which cobalt is often mined in the Democratic Republic of the Congo, home to around two-thirds of the world’s known cobalt reserves.
  10. Reuters (2020). ‘Portuguese communities lock horns with lithium miners to save their land’. Accessed 14.02.2020
  11. WIRED (2018). The spiralling environmental cost of our lithium battery addiction. Accessed 14.02.2020
  12. https://www.edentreeim.com/insights/edentree-insight-road-transport