AdJUSTing the climate transition

However, the transition comes at a cost for those whose livelihoods currently rely on fossil fuels, and the practices of the past. To mitigate the impact on workers and other affected stakeholders in areas such as the coal industry, the International Labour Organization defined the term ‘Just Transition’ in 2015. A Just Transition means greening the economy in a way that is as fair and inclusive as possible to everyone concerned, creating decent work opportunities and leaving no one behind.

In 2023, Robeco launched a new engagement theme called the ‘Just Transition in Emerging Markets’, working with companies to try to make greening the economy as fair as possible. The engagement will initially focus on sectors directly affected by the push for net zero, such as energy, utilities and mining. In this Q&A, Robeco Engagement Specialist Ghislaine Nadaud explains why ensuring a Just Transition is crucial for achieving a sustainable and climate-resilient future.

“The transition to a low-carbon economy is expected to affect nearly 1.5 billion workers globally. The UN Framework Convention on Climate Change identified 1.47 billion jobs in sectors critical to climate stability: agriculture (1 billion); manufacturing (200 million); buildings (110 million); transport (88 million); and energy (30 million).”

“A Just Transition emphasizes the need for a fair and inclusive approach to the decarbonization process. Beyond workers, it considers the impacts on all affected stakeholders including communities; suppliers and consumers along the value chain; and broader citizens.”

“We align our approach with the International Labour Organization’s definition. The Just Transition is a process towards an environmentally sustainable economy, which ‘needs to be well managed and contribute to the goals of decent work for all, social inclusion and the eradication of poverty’. ”¹

“Companies are approaching the net-zero transition in various ways: transitioning out of polluting industries and into the renewable energy sector; automating production practices; and downsizing or diversifying the scope of operations. What is common across all these companies is that people and communities have supported them until today. Understanding the social impacts of the net-zero transition is crucial for investors to more fully understand climate change’s financial risks.”

“While the Just Transition is a global challenge, it is especially relevant for emerging markets. Emerging markets account for over 95% of the increase in global emissions and are projected to account for 90% of global population growth. Given their strong dependence on high-emitting sectors like coal mining and agriculture, they face a significant risk of unsustainable, inequitable development.”

“Transition-related job losses, exacerbated by weak social protection policies, will affect billions of people. There are 6.7 million people employed across the coal value chain in Asia. However, there are also huge opportunities for emerging markets. A Just Transition can reshape their economic landscape, create jobs, advance the Sustainable Development Goals (SDGs) and elevate their global standing by showcasing a proactive response to climate change and social equity. By capitalizing on these opportunities, emerging economies and companies place themselves on a sustainable growth trajectory, benefiting their people and the planet.”

“The growing global dialogue on the Just Transition has prompted the establishment of various frameworks and initiatives from diverse stakeholders who seek to facilitate a global Just Transition. These include the International Labour Organization’s Just Transition Guidelines, the UN Guiding Principles for Business and Human Rights, Climate Action 100+ initiative, and the World Benchmark Alliance’s Just Transition Methodology.”

“These frameworks and benchmarks offer a foundation for asset managers to set clear objectives when engaging with investee companies on the Just Transition, ensuring credibility while avoiding greenwashing. The frameworks were imperative for us in developing the five engagement objectives that will structure our Just Transition dialogues.”

“The first engagement objective covers a company’s Just Transition ambitions and governance. The second objective addresses stakeholder engagement, ensuring that companies identify potentially affected stakeholders and commit to ongoing social dialogues with them. The third objective focuses on the need for a Just Transition Plan, including a defined strategy towards Just Transition-related risks and opportunities. The fourth objective concerns risk identification, assessment and management, with a focus on social risks and impacts. Finally, the fifth objective addresses the company’s transparency and disclosures in relation to its Just Transition progress.”

“We conducted extensive research to understand the industries represented in our portfolio and their progress in integrating Just Transition principles. We aimed to identify the industries with the most potential for engagement and positive impact, considering key factors including emission intensity, industry size in the Asia-Pacific (APAC) region and South Africa; and Just Transition-related initiatives in these countries.”

“After careful analysis, we determined that the mining and energy industries were the most suitable for our engagement process. Subsequently, we embarked on a thorough selection process, screening our database to identify companies operating within the targeted sectors in the APAC region and South Africa. We applied a rigorous evaluation of these companies based on their alignment with the relevant SDGs (SDGs 7 on Affordable & Clean Energy, 8 on Decent Work & Economic Growth, and 13 on Climate Action) and our proprietary climate scores.”

“Subsequently, we consulted some of our clients and the relevant investment teams to gain insights into their investment approach and perspectives on attractive companies. We shortlisted several companies to further assess their suitability for engagement, accounting for their net-zero decarbonization strategies, initiatives to protect the rights of workers and local communities, and training programs to upskill or reskill their workforce. As a result of this process, we selected six companies for engagement under the Just Transition theme.”

“Although the Just Transition is relevant for the global economy and therefore all sectors, our engagement activities are initially focused on the energy and mining sectors due to their stronger decarbonization progress and social relevance for emerging markets. Going forward, our engagement will expand to other key sectors, including agriculture, construction, transportation, and finance.”

“Just Transition-related challenges and opportunities will inevitably vary across regions. To overcome these challenges and capitalize on the opportunities described above, a comprehensive, ‘tailor-made and integrated’ approach is essential. This includes strategic investments in sustainable solutions, tailored policies that balance economic growth, social equity and environmental sustainability, as well as collaborations with governments, corporates and civil society.”

“Companies have a pivotal role in ensuring a Just Transition by embracing sustainable practices, driving local innovation, creating green jobs, advocating for supportive policies and engaging in transparent reporting. Investors should guide this by assessing and addressing Just Transition concerns in their investment decisions.”

This interview originally appeared in the Robeco Q3 2023 Active Ownership report

Footnote
¹Guidelines for a just transition towards environmentally sustainable economies and societies for all (2015)