For too long, issues of justice and equality have been left out of the climate conversation. But policymakers, companies and investors are slowly beginning to acknowledge the social dimensions of climate action.
In January 2020, a group of young climate activists held a press conference at the World Economic Forum in Davos. The Associated Press published a photograph of the event online: the image showed Swedish teenager Greta Thunberg and three other white women against a backdrop of snowy mountains.
But someone was missing. The only black member of the group, 23-year-old Ugandan campaigner Vanessa Nakate, was cropped from the image. When she politely tweeted AP to ask why, she found herself at the centre of a debate about racism in journalism – and the climate movement itself.
"We don't deserve this. Africa is the least emitter of carbons, but we are the most affected by the climate crisis,” Nakate said later, in a video statement posted on social media. “You erasing our voices won't change anything. You erasing our stories won't change anything.”1
Although the AP apologised, claiming the image was cropped “purely on compositional grounds”, the incident was a reminder of how people in the global south are routinely ignored in the fight against climate change. But thanks to the work of Nakate and others, the concept of a just transition – a more equitable, inclusive route to a net-zero future – is gaining ground among policymakers, workers and businesses across the world.
A just transition
Start with the question of fairness. Low-income economies in Africa, Asia, Latin America and Oceania have historically contributed little carbon to the atmosphere (see Figure 1). In many cases, they are also still suffering the legacy of the colonial period, when Western powers brutally plundered poorer countries’ resources to further their own, carbon-intensive development.
Rich countries that exploited the world have a moral obligation to help solve this crisis in an equitable way
“Rich countries that exploited the world have a moral obligation to help solve this crisis in an equitable way,” says Steve Waygood, chief responsible investment officer at Aviva Investors. “Even after colonialism ended, Western companies extracted property rights and licences using unfair profit-sharing agreements, meaning the world’s poor lost out.”
In a cruel irony, developing economies are now unlikely to be able to make full use of their remaining hydrocarbon wealth, due to the imperative to rapidly decarbonise the global economy. Their governments face the tricky task of diversifying away from oil and gas, while simultaneously lifting citizens out of poverty and channelling capital towards costly climate resilience and adaptation projects.
“A just transition in Africa centres on one word – socio-economics,” says Richard Munang, Africa Regional Climate Change Coordinator at the United Nations Environment Programme (UNEP). “While Africa has contributed least to the current emissions causing climate change effects, at two to three per cent, it suffers disproportionately because of a very low socio-economic base.
“While climate change effects are global, the poor are disproportionately vulnerable because they lack the resources to afford goods and services to buffer against the worst effects,” Munang adds.
Within richer nations, too, the physical and economic impacts of climate change tend to fall on those without the means to protect themselves. In the US and Europe, poorly managed deindustrialisation has created impoverished rustbelts and extreme weather is already hurting working class and minority communities, worsening existing inequalities. Research from The New York Times finds white people are less likely than people of colour to be affected by natural disasters in the US – and more likely to benefit from government aid when they are.2
Figure 1: Historic carbon emissions by region (billions of tonnes)3
Note: This measures CO₂ emissions from fossil fuels and cement production only – land use change is not included.
Source: Carbon Project
Rights and capabilities
It doesn’t have to be this way. A growing body of evidence indicates a well-designed energy transition can bring a range of benefits in both rich and poor countries, mitigating social problems and creating new employment opportunities. A study from the International Labour Organisation, a UN agency, finds the energy transition is likely to create 24 million jobs in clean industries worldwide, with six million lost – a net gain of 18 million.4
The challenge is to ensure those benefits are evenly spread. One way to do this is to focus on human capabilities. Derived from the ideas of the philosophers Martha Nussbaum and Amartya Sen, the capabilities approach to welfare centres on people’s ability to access the resources they need to achieve their full potential and defend their human rights.
The capabilities framework makes demands for climate action stronger
“The capabilities framework makes demands for climate action stronger because it recognises the need to connect climate action with human wellbeing. You cannot possibly meet your capabilities if you are experiencing a multi-year drought, or if you live in a rustbelt town where coal mining is your only choice of work,” says Sonja Klinsky, associate professor at the School of Sustainability at Arizona State University and co-author of The Global Climate Regime and Transitional Justice.
The capabilities framework also helps to codify the legal basis of the just transition. The principle of Common but Differentiated Responsibilities and Respective Capabilities, recognising the need for climate action to take into account disparities between developed and developing economies, was enshrined in the United Nations Framework Convention on Climate Change as early as 1992.
While progress has been slow since then, Klinsky says awareness of the need to deliver a just transition is growing, for pragmatic as well as ethical reasons.
“When I started working in this area, in 2005, there was a lot of scepticism. But in the last few years, it's become very apparent that if you don't integrate the needs and lived experiences of those who are facing the greatest change, you simply cannot get where you want to go. That said, it's one thing to recognise the issue, quite another to put in place the kinds of policies and actions that get us there,” Klinsky adds.
From global to local: Climate action and the just transition
Action on the just transition needs to happen at several different levels: from multilateral agreements to establish countries’ relative responsibilities and mobilise private investment; to national policies such as carbon taxes; to regional and place-based initiatives promoting communities’ capabilities through the transition.
The just transition applies at all levels, from global to national down to the specific locality
“The just transition applies at all levels, from global to national down to the specific locality,” says Nick Robins, professor in practice for sustainable finance at the London School of Economics (LSE) Grantham Research Institute. “People talk about a ‘whole of society’, ‘whole of government’, ‘whole of business’ approach to the climate crisis, and this is exactly what’s needed for a just transition.”
At the global level, the importance of a just transition was nominally recognised in the 2015 Paris Agreement, which outlined the need to “[take] into account the imperatives of a just transition of the workforce and the creation of decent work and quality jobs in accordance with nationally defined development priorities”. However, this text appeared only in the preamble of the document, rather than the agreement proper.
“We are paying lip service to the just transition, but we are still far from actualising it in our transition plans,” says Fatima Denton, director of the United Nations University Institute for Natural Resources in Africa (UNU-INRA) and a lead author of the Intergovernmental Panel on Climate Change sixth assessment report. “Our approaches are often macro, discounting the need for social justice to serve a group of people that will be disproportionately impacted in a low-carbon development transition. Even the terminology ‘net zero’ has justice implications. Whose net zero are we talking about?”
Even the terminology ‘net zero’ has justice implications. Whose net zero are we talking about?
COP26 in Glasgow represents an opportunity to put concrete plans for a just transition in place. But even before the conference begins, climate activists from the global south are warning the meeting could be a “rich nations stitch-up” – especially if COVID-19 protocols prevent their delegates from travelling to Scotland.5
Organisers say they are loosening COVID rules to allow people who have been unable to access vaccines in their home countries to attend – but the unvaccinated will still have to quarantine at their own expense. According to Maria Reyes, a climate campaigner from Mexico, this points to an exclusive, neo-colonial approach: “You’re preventing the attendance of the people affected by the climate crisis. That really has let us see how this is going to be the most imperialistic COP ever.”6
Adaptation and resilience
Nonetheless, delegates from developing economies are determined to make their voices heard. The African Group of Negotiators on Climate Change (AGN) has outlined a series of priorities for COP26, including a new climate finance framework that would enable African economies to raise investment and meet ambitious nationally determined contributions (NDCs).7
The AGN, along with the Climate Vulnerable Forum, which represents billions of people across Africa, Asia, the Caribbean, Latin America and the Pacific, is also calling on rich countries to follow through on pledges of support for climate resilience and adaptation projects. At COP16 in Mexico in 2010, developed economies agreed to raise $100 billion per year by 2020 for this purpose – but the target has still not been met, and the original amount may no longer be sufficient in any case given the impact of COVID-19 on poorer countries’ finances. The UN estimates annual adaptation costs could hit $300 billion by 2030 and $500 billion by 2050.8
Belated progress was made at the UN General Assembly in September, when US President Joe Biden promised to double aid to countries on the frontlines of the climate crisis to $11 billion, sparking optimism other nations will make similar pledges at the COP meeting.9
The African Group of Negotiators on Climate Change stresses support for initiatives should come in the form of grants rather than loans
The AGN wants to direct some of the promised capital to the African Adaptation Initiative, a collaborative effort among several African states. One of its flagship schemes seeks to ensure the 80 million people living in the Lake Chad River Basin, an area that spans five countries, receive advance warning of droughts and floods, along with protective infrastructure and technology.10 The AGN stresses support for such initiatives should come in the form of grants, rather than loans that would only add to the target countries’ swingeing debt burdens.
Properly designed, adaptation schemes can bring other advantages. “If gender equity is intersected with adaptation projects, it will unleash more societal and economic benefits,” says Denton. “For instance, governments should intentionally make an effort to provide climate-relevant data to women farmers. Access to critical information will improve their forecasting skills, enable them to make strategic farming decisions, and address agricultural risks related to uncertainty that may result in poor harvests.”
Experts stress that resilience is both a physical and economic concept. Munang cites efforts to promote ecosystem-based adaptation (EBA) in the agricultural sector in Africa, an approach that limits damage to the environment through farming and taps into growing international demand for organic, sustainably sourced food, thereby bolstering resilience in both senses of the word.
“EBA is looked at not just from its biophysical ability to minimise the physical damage of climate change, but its socio-economic value, to create income opportunities for communities to buffer themselves,” he says.
Over the longer term, developing economies will need to fully diversify away from fossil fuels, to meet their own NDCs and avoid the risk their natural resources become uneconomic – so-called ‘stranded assets’.
A recent report from the UNU-INRA points out African economies face a threefold risk: that they are “locked in” to fossil-fuel-based infrastructure; “locked out” of a clean-energy transition, through lack of access to technologies related to low-carbon development; and “pushed out”, as carbon-intensive assets are relocated to the global south.11
“This is already happening, and it is the equivalent of ‘dumping’ dirty technologies in countries where legislation is weak or low-carbon technologies are still at experimental stages,” says Denton.
International carbon markets could equip countries with the financial tools to decouple development from environmental degradation
Given these challenges, nations currently reliant on fossil-fuel exports are likely to have to delay their transitions relative to developed economies, giving them time to implement sustainable economic plans. It may make sense for them to maximise revenues from fossil fuels while such a strategy remains economically viable, by investing in value-add facilities such as oil refineries and putting in place follow-up low-carbon energy infrastructure. Natural gas, a less carbon-intensive alternative to oil and coal, could serve as a transition fuel.12
The establishment of international carbon markets, meanwhile, could equip countries with the financial tools they need to decouple development from environmental degradation over the longer term, rewarding conservation.
Take the example of Gabon, a country that has sought to protect vast swathes of equatorial forest, an important carbon sink – as a result, it is a net-carbon sequester (Gabon’s trees absorb around one third of the carbon emitted by France, its former colonial occupier).13 Under a scheme called the Central African Forest Initiative, Gabon already receives money for offsetting emissions from European countries; in 2021, it received a $17 million payment from oil-rich Norway. A more established carbon market would allow it to formally sell its emissions reductions as credits.14
Combining climate action and development
In the meantime, poorer countries are looking to make use of sustainable energy sources to both decarbonise and boost living standards. Niger, located in the arid Sahel region, recently announced the construction of a photovoltaic power plant that will improve energy access among isolated populations.15
Using renewable power to improve access links climate action with development and can bring wider social benefits
As Munang points out, energy access is a widespread concern in sub-Saharan Africa. People without direct grid access to electricity often use fossil-fuel-guzzling generators that cost between three- and six-times more than the rates consumers pay elsewhere. Using renewable power to improve access neatly links climate action with development and can bring wider social benefits.
In Bangladesh, for instance, a public-private entity was established to provide low-interest loans to rural families for the purpose of installing solar systems at home; a study of the scheme found that using solar electricity eased the burden of household work on women and freed them to engage in income-generating activities.16
Rolled out at scale, these kinds of inclusive and sustainable initiatives could allow low-income economies to achieve their social priorities without following the path of carbon-intensive development trodden elsewhere. Figures 2 and 3, based on research by the University of Leeds, show how countries have historically tended to raise living standards by exploiting natural resources and transgressing environmental boundaries; the key to a just and effective transition is to break this link.
Figure 2: Social development tends to come at an environmental cost17
Note: The Y axis tracks companies’ progress on social metrics such as education and electricity access; the X axis shows the extent to which they are exploiting natural resources to do so.
Source: Nature Sustainability, 2018
Figure 3: Developed economies (and some fast-growing emerging economies) have achieved social goals by transgressing ecological boundaries18
LS = Life Satisfaction; IN = Income Proverty; DQ = Democratic Quality; LE = Healthy life Expectancy; EN = Access to Energy; EQ = Equality; NU = Nutrition; ED = Education; EM = Employment; SA = Sanitation; SS = Social support
Note: Green wedges show resource use relative to a biophysical boundary associated with sustainability. Red wedges show shortfalls below the social threshold (in the middle of each circle) or overshoots beyond the biophysical boundary (on the outer edge).
Source: Nature Sustainability, 2018
The left behind
In middle- and high-income economies that have already overstepped their environmental boundaries, the onus is on governments to cut emissions more quickly and steeply. Here, just transition efforts centre on ensuring the most vulnerable communities receive adequate support, especially in regions that have traditionally been dominated by carbon-intensive industries.
The European Union has established a Just Transition Mechanism that aims to mobilise €65-75 billion between 2021 and 2027 to alleviate the social and economic impact of the transition on affected areas; it has already provided support to coal-producing regions in Slovakia, Romania and Greece. Funds are earmarked for subsidies, retraining and education initiatives.19
The Biden administration has pledged to incorporate the just transition into a massive infrastructure development package
In the US, the Biden administration has pledged to incorporate the just transition into a massive infrastructure development package; 40 per cent of its clean energy investments will go to disadvantaged communities.20 The plan contains specific measures to protect the retirement benefits of workers hardest hit by the transition, such as coal miners and their dependants.
“The just transition is now a priority in Europe and the US. [European Commission President] Von der Leyen has made clear that a just transition is absolutely key to climate action,” says the LSE’s Robins. “And look at President Biden's climate strategy: his number one theme is jobs, and environmental justice across communities is also a major consideration. These two massive economies now recognise the just transition as being a critical enabling factor in tackling climate change.”
Governments appear to be learning the lessons of the past, when transition policies that ignored social impact were greeted with a fierce backlash (see ‘Vive le Carbon Tax!’ below). And clear, well-designed transition plans could also bring further benefits, in the form of much-needed investment.
The role of finance
Until now, finance has been slow to recognise the importance of social issues and reluctant to connect the ‘E’ and the ‘S’ in ESG. But this is changing as the just transition provides a strategic lens through which to assess and manage risk. A disorderly transition will increase the vulnerability of certain economies, bringing hazards for those seeking to allocate capital.
“The fiscal impact of funding the climate transition on developing economies, given already high debt levels, is a key risk – particularly if the bulk of the costs are borne by the state,” says Carmen Altenkirch, emerging market sovereign analyst at Aviva Investors.
The climate transition needs to be funded by both the private and public sector to make it affordable for poor nations
“For sub-Saharan Africa, a rough estimate suggests meeting climate targets under the International Energy Agency’s Sustainable Development Scenarios would cost around five per cent of GDP on an annual basis. Average debt across the region is already sitting at 56 per cent, so these added costs risk making debt unsustainable very quickly. To make the climate transition affordable for poor nations, it needs to be funded by both the private and public sector – and ultimately it needs to be growth-enhancing,” she adds.
One way to attract private financing is through new instruments. In June 2021, Benin raised €500 million through the issuance of bonds directly linked to the UN’s Sustainable Development Goals, pledging to devote the proceeds to relevant environmental and social objectives, including access to water and clean energy, education, health, decent housing, connectivity, and biodiversity conservation.21
Such deals remain rare. Public-private partnerships or guarantees from governments and multilateral organisations, such as the World Bank, could help though, by unlocking more capital for socially valuable projects in developing economies that have modest or fair credit ratings, and making the costs more affordable.
“To be sustainable, the cost of green or social bonds needs to be materially lower than conventional Eurobonds, but recent deals suggest that this is not the case so far,” says Altenkirch. “Multilateral guarantees to raise the issuer rating and reduce the cost of issuance would be supportive. Ultimately, the pool of capital to support these projects needs to be expanded, as well as the capacity of countries to implement projects. More local currency issuance to fund green projects, equity investments in companies supporting the green transition, grants and foreign direct investment will all be part of the solution.”
Policy and shareholder engagement
Investors can also play a role in engaging with policymakers and multilateral institutions to ensure capital is directed to where it is needed most. As Robins argues: “Investors have a very influential voice with government. They need governments to have investment-grade climate policies because there are certain things investors can’t do – they cannot deliver training policy, or regional policy. The right policies can unlock capital for the just transition.”
Robins is founder of the Financing the Just Transition Alliance (FJTA), which represents nearly 40 banks, asset managers (including Aviva Investors) and other financial organisations, along with trade unions and universities. It aims to identify ways in which finance can support the just transition; its work includes collaboration with governments on devising new investment products to channel capital towards the areas of greatest need.
One example of the just transition moving into financial reality is the UK's recent green sovereign bond programme. In 2021, following an earlier proposal from the Grantham Research Institute, the Green Finance Institute and the Impact Investing Institute, the UK government committed to raise £15 billion with green sovereign bonds this fiscal year, and recognised the just transition as part of its Green Finance Framework, pledging to report on the social co-benefits of its spending (for example, in terms of job creation).22
Engagement can lead to results at a corporate level
Engagement can also lead to results at a corporate level. By encouraging companies to take the social and political implications of the transition into account, investors can help drive positive change through the private sector.
“Investors are beginning to recognise that supporting a just transition helps mitigate broader systemic risks, along with specific transition risks faced by investee companies,” says Louise Wihlborn, ESG analyst at Aviva Investors. “Companies need to be mindful of the social and legal ‘license to operate’ and the reputational risks that stem from ignoring the rights of employees and communities.”
Recognition of the just transition is still at an early stage among companies. A 2018 study from ESG consultancy Vigeo Eiris found very few energy firms were incorporating social impact into their transition and restructuring plans (see Figure 4). To address this lack of urgency, the FJTA recommends investors take a more active role. It has published a framework for shareholder engagement that calls on companies to incorporate the just transition into remuneration, planning, risk management and scenario exercises; to safeguard the rights of workers and communities; and to apply labour, human rights and environmental due diligence across their supply chains.23
Figure 4: Few energy companies are showing leadership on the just transition24
Source: Grantham Research Institute on Climate Change and the Environment, 2018
There are signs nascent investor engagement on the just transition can bear fruit: following shareholder dialogue at its annual general meeting in August 2021, the utility SSE became the first company to publish a just transition plan, setting out 20 principles for its operations, including robust stakeholder consultation and retraining initiatives.25
Nevertheless, there is a long way to go before such commitments become mainstream. One issue for investors is the difficulty in obtaining data on social metrics as a basis for asset allocation and engagement. Tracking human rights standards across convoluted international supply chains is a particular challenge, which is why Aviva Investors is calling for tougher legislation to ensure businesses are complying with the UN Guiding Principles on Business and Human Rights.
“We want to see it become a legal duty for companies to undertake environmental and human rights due diligence, and the development of a more robust social taxonomy to enable the shift of capital towards more socially sustainable activities,” says Wihlborn. “Without robust processes, a just transition isn’t achievable. Human rights abuses are rife in corporate supply chains for the renewable sector.”
As an example, Wihlborn cites a recent study that found up to 40 per cent of the UK’s solar farms were built using panels supplied by Chinese firms implicated in the forced labour of Uyghur and other mostly Muslim ethnic groups in the province of Xinjiang.26
A holistic approach
Initiatives in the pipeline could bring about greater transparency. The World Benchmarking Alliance is developing a dedicated Just Transition Benchmark, which will provide a ranking of companies on social metrics (it is set to deliver an initial report on 180 companies at COP26, with the full benchmark due in 2023).27 Companies are also being encouraged to use the Task Force for Climate-related Financial Disclosures (TCFD) to provide comprehensive reports on the social impact of their operations; this would represent a “natural evolution” for the platform, says Wihlborn.
Better data on the social and environmental dimensions of companies’ operations might highlight opportunities. Julie Zhuang, global equities portfolio manager at Aviva Investors, cites companies helping nations adapt to rising water scarcity. For instance, her portfolio has a stake in one company that uses GPS and sensoring technologies to help farmers maximise crop yields while ensuring more accurate deployment of resources and minimising water waste. A second investment is in a company that provides water control and rainwater-harvesting systems to help conserve water resources and enables the filtering of safe drinking water in isolated disaster zones.
It makes sense to be investing in companies that help the world adapt to the consequences of global warming
“It makes sense to be investing in companies that help the world adapt to the consequences of global warming, specifically droughts and water scarcity. This issue is only going to grow in importance,” says Zhuang.
On occasion, it might make sense for investors to contribute to projects that would not pass muster when viewed through a purely environmental lens, but could be justifiable on socio-economic grounds. Real assets projects, for example, often bring a mixture of positive and negative outcomes, necessitating a case-by-case approach in which investors must liaise with a range of stakeholders to assess any trade-offs between ‘E’, ‘S’ and ‘G’. It was as a result of such a due diligence process that Aviva Investors made a loan to a major state-owned company in Ivory Coast in 2018, the proceeds from which went towards funding improvements to an existing oil refinery.
The transaction lessened the country’s reliance on energy imports, improved efficiency at the existing facility, and brought benefits to the local economy. Though it was a carbon-intensive project, it still aligned well with the UN’s Sustainable Development Goals.
A bigger picture
As momentum builds behind the just transition, the current social and environmental trade-offs could disappear. But this will only be possible with the involvement of younger generations – the policymakers, scientists and entrepreneurs of the future.
After all, the question of justice is doubly relevant for young people growing up in regions scarred by a crisis they had no part in. Let down by a capitalist system that was built by and for others, witness to wildfires, floods and droughts that are devastating their communities, many young people are understandably suffering from climate anxiety.28 However, they are increasingly channelling their sense of injustice into positive action, too.
Policy incentives will accomplish very little if they fall on passionless, purposeless citizens
“Policy incentives, regardless of how timely they may be, will accomplish very little if they fall on passionless, purposeless citizens,” says Munang, who hails the mindset of “discipline, purposeful passion, unborrowed vision and selflessness” in Africa’s young people.
This includes people like Nakate, who is leading important climate-related projects in Uganda and beyond through her grassroots Rise Up Movement; Elizabeth Wathuti, a Kenyan climate activist whose Green Generation Initiative devises nature-based solutions like tree planting and conservation schemes; and Oladosu Adenike, a Nigerian ambassador for the African Youth Climate Hub.29
Their work is inspiring millions of other people across the global south to tackle the twin crises of environmental breakdown and social injustice. If we are to properly address climate change, we can no longer leave them out of the picture.