27 July 2021 / Research
Investor framework outlined to remedy ‘insufficient’ just transition strategies
By Natasha Turner
Investors can address expectations across seven areas of business with Grantham Institute and LSE report
Investors must require businesses to outline their approaches to a just transition, a new report has said while setting out a framework for investors to achieve this.
The Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at the London School of Economics and Political Science report From the grand to the granular: translating just transition ambitions into investor action, funded by Candriam, looked at how five European power utility companies – Enel, EDF, SSE, E.ON and ZE PAK – have been approaching the just transition to net zero.
It found “some of the core foundations are acknowledged”, but “a strategic approach is still emergent”.
Investors are starting to recognise the importance of a just transition. In 2018, more than 160 institutions with more than $10trn in assets under management signed a statement of commitment, and more recently it has been incorporated into the Climate Action 100+ Net-Zero Company Benchmark, as well as shareholder engagement.
This year, Royal London and KPMG were among those calling for a just transition among energy companies and other businesses.
The report therefore sets out a framework for investors to use to make sure businesses are thinking about a just transition.
It said: “To enable investors to fulfil their role, clear just transition expectations of business are needed, which can then be used in investment analysis, shareholder engagement and capital allocation to deliver real impact.
“Developing such a framework is not an exercise in invention: rather, it is about applying well-established – but often insufficiently implemented – social and labour standards to the transformational challenge of climate action.”
The framework sets out expectations across seven areas: strategy, workers, supply chain, communities, consumers, policy and partnerships, and transparency and disclosure. Among these categories include recommendations for:
- having a company plan adopted at board level
- incorporating the just transition into remuneration, planning, risk management, scenario exercises and capital investment, as well as acquisitions and restructuring
- ensuring affordable access to key goods and services
- ensuring representation of workers at all levels in transition decisions
- lobbying the government
- Task Force on Climate-Related Disclosures reporting
“Investors have a key role to play in ensuring all investment has a deep ESG lens and that the companies they invest in have a just transition plan that has involved their workers in the design,” said Sharan Burrow, general secretary of the International Trade Union Confederation.
“This report will help investors play their role by setting out a robust framework based on international standards and emerging practice.”
The report also sets out international policy frameworks that can help investors navigate the just transition. These include The UN: International Labour Organization and human rights standards, which also has a just transition framework; the OECD’s Guidelines for Multinational Enterprises, which are addressed specifically to businesses (including institutional investors), particularly those involved in international trade and investment; and the European Union’s Taxonomy.
Candriam CEO Naïm Abou-Jaoudé said: “As investors, we recognise that we have a supporting role to play in ensuring that social dimensions are fully integrated into the climate strategies of the companies in which we invest.”
Part of the Bonhill Group.