The concept of a ‘just transition’ is emerging as an essential consideration as companies and governments consider how to transition to a resilient zero-carbon economy. A just transition means making sure that action on climate change supports an inclusive economy, with a focus on workers and communities.

The rise to prominence of a just transition was highlighted at the 24^th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP24) in 2018, where a just transition declaration was signed by 53 governments. There was also support for an investor statement backed by over 100 institutions (including over 20 UK institutions) with collectively more than US $6 trillion in assets.

The just transition is entering mainstream policy and markets, led by stakeholders such as environmental organisations and trade unions. It starts with a focus on workers, but also includes communities, consumers and citizens. It has strong connections with the respect for human rights.

Produced in 2018 by the Grantham Research Institute and the Sustainability Research Institute, this is the first report from a project that sets out how investors can contribute to the just transition within the United Kingdom. It explores the extent of the challenge, current efforts to address it, and what actions investors can take, including at the regional level.

The initial findings of the project focus on Yorkshire and the Humber in the UK. Actions identified are consistent with the UK’s transition to a zero-carbon economy and align with the Paris agreement and Sustainable Development Goals.

The priorities for the UK’s just transition are to ensure that:

• clean growth is inclusive;
• decarbonisation is responsible;
• resilience is delivered fairly; and
• there is a focus is on place-based development where these priorities come together.

The just transition starts from a focus on ensuring that actions to tackle climate change also take account of core social priorities, such as distribution of resources and the ways in which decisions are made.

There are five areas for investors to take practical action;

• Investment strategies – determining how the transition impacts on the investor’s responsible investment and climate change policies;
• Corporate engagement – through regular discussion with companies about the just transition.
• Using capital allocation across all asset classes – public equities, fixed income, private equity, infrastructure, real estate and cash. There may be opportunities for impact investors seeking to generate positive social and environmental outcomes, alongside financial returns.
• Policy advocacy – investors have an influential role in policymaking, at local, national and international levels.
• Learning and review – investors, policymakers and industry sectors should have monitoring, evaluation and sharing of outcomes, so investors can learn from experience and share lessons.

An important conclusion of this report is that the just transition offers investors in the UK a strategic opportunity to connect climate action with positive social impact across the country.

1. The just transition links environmental and social aspects of responsible investment. It helps investors to better understand risk, meet their fiduciary duties, and uncover investment opportunities. It also enables investors to contribute to societal objectives such as the Paris Agreement on Climate Change and the Sustainable Development Goals.
2. Investors are using a range of tools to evaluate the alignment of their portfolios with the goals of the Paris Agreement. To evaluate the social performance of high- and low-carbon companies and inform future actions, investors can screen their portfolios. Existing frameworks such as the Workforce Disclosure Initiative and Corporate Human Rights Benchmark can be used for this assessment.
3. To understand the views of investing stakeholders, investors may wish to create dialogue with businesses, trade unions, policymakers, and universities. As an example, the Italian insurance firm Generali has incorporated stakeholder dialogue into its climate strategy.
4. Engagement by investors is a powerful mechanism both for generating a better understanding of corporate performance on the just transition, and for driving improved practices. The Task Force on Climate-related Financial Disclosures has developed engagement questions to use in discussions with companies about the just transition. These questions can complement existing engagement strategies.
5. Delivering a just transition will be key both to realising the full benefits of climate action and to gaining public approval for the deep structural changes that are required.
6. The just transition is a national as well as a global policy priority, and is being translated into frameworks relevant for the UK, for example through Scotland’s Just Transition Commission.
7. The implications of the transition for employment could be significant, with one in five current jobs potentially facing increased or reduced demand for their skills in the transition to a green economy.
   
8. A growing range of stakeholders are active in shaping the agenda, including trade unions and environmental organisations. The role of business, large and small, needs to be drawn out more.
9. Leading UK investors are getting engaged with the just transition agenda, driven both by fiduciary duty and efforts to connect their decisions with the delivery of positive social and environmental impact.