• Economic Research
  • Responsible Investing
  • ESG

A fair COP

Why social justice is vital to climate action

Policymakers, companies and investors are slowly beginning to acknowledge the social dimensions of climate action.

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.

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 plundered poorer countries’ resources to further their own development.

In a cruel irony, developing economies are 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.

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.

Figure 1: Historic carbon emissions by region (billions of tonnes)1
Historic carbon emissions by region
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 well-designed energy transition can bring a range of benefits in rich and poor countries, mitigating social problems and creating 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.2

A well-designed energy transition can bring a range of benefits in rich and poor countries

The challenge is to ensure those benefits are evenly spread. Action on the just transition needs to happen at several 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.

At the global level, the importance of a just transition was nominally recognised in the 2015 Paris Agreement; COP26 in Glasgow represents an opportunity to put concrete plans in place.

Adaptation and resilience

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’.

Nations currently reliant on fossil-fuel exports are likely to have to delay their transitions relative to developed economies

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.3

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.

In the meantime, poorer countries are looking to make use of sustainable energy sources to both decarbonise and boost living standards. Rolled out at scale, these kinds of initiatives could allow low-income economies to achieve their social priorities without following the path of carbon-intensive development trodden elsewhere.

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.

One way to attract private financing is through new instruments

One way to attract private financing is through new instruments. Public-private partnerships or guarantees from governments and multilateral organisations, such as the World Bank, could help unlock more capital for socially valuable projects in developing economies that have modest or fair credit ratings, and making the costs more affordable.

Investors can also play a role in engaging with policymakers and multilateral institutions to ensure capital is directed to where it is needed most. Engagement can 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.

A just transition will only be possible with the involvement of younger generations

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. If we are to properly address climate change, we can no longer leave them out of the picture.

Want more content like this?

Sign up to receive our AIQ thought leadership content.

Please enable javascript in your browser in order to see this content.

I acknowledge that I qualify as a professional client or institutional/qualified investor. By submitting these details, I confirm that I would like to receive thought leadership email updates from Aviva Investors, in addition to any other email subscription I may have with Aviva Investors. You can unsubscribe or tailor your email preferences at any time.

For more information, please visit our privacy notice.

Related views

Important information

THIS IS A MARKETING COMMUNICATION

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

The information contained herein is for general guidance only. It is the responsibility of any person or persons in possession of this information to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. The information contained herein does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it would be unlawful to make such offer or solicitation.

In Europe, this document is issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company. In the UK, this document is by Aviva Investors Global Services Limited. Registered in England No. 1151805. Registered Office: 80 Fenchurch Street, London, EC3M 4AE. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 138 Market Street, #05-01 CapitaGreen, Singapore 048946.

In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business address: Level 27, 101 Collins Street, Melbourne, VIC 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom.

Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is based within the North American region of the global organization of affiliated asset management businesses operating under the Aviva Investors name. AIC is registered with the Ontario Securities Commission as a commodity trading manager, exempt market dealer, portfolio manager and investment fund manager. AIC is also registered as an exempt market dealer and portfolio manager in each province of Canada and may also be registered as an investment fund manager in certain other applicable provinces.

Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”). AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.