Investor-backed Just Transition criteria launched

Impact Investing Institute also exploring potential for Just Transition label based on three criteria.

The UK Impact Investing Institute has developed a set of criteria to help fund managers create investment products that advance a Just Transition.

The criteria were created as part of the Institute’s Just Transition Finance Challenge, which brings together public and private asset owners, asset managers, development finance institutions and advisers committed to financing the Just Transition in the UK and emerging markets. Scottish Widows, Schroders, Nest and the Environment Agency Pension Fund are among its investor members.

The challenge was born out of the Impact Taskforce – mandated by the UK government under its presidency of the G7 in 2021 – which identified three elements needed to provide a common frame of reference for financial market actors seeking to advance a Just Transition.

These three elements – climate and environmental action, socioeconomic distribution and equity, and community voice – underpin the criteria published on Wednesday, which were co-created and tested in collaboration with 21 asset owners and managers with more than £4 trillion ($4.95 trillion; €4.6 trillion ) in AUM.

The criteria focus on three factors. First, that the manager has made a product-level commitment to the Just Transition, with details about how the overall strategy and process will help to achieve Just Transition outcomes.

The second requirement is that each investment within the product is assessed to avoid harm to any of the three elements. And finally, the product must make a positive aggregate contribution to all three elements, and, over time, each underlying investment should contribute to all three elements.

All of the three criteria need to be met for a product to be considered as Just Transition-aligned.

The Impact Investing Institute said asset managers are the primary intended users of the criteria as a way to create new products aligned with the Just Transition, adapt existing products to deliver Just Transition outcomes, and to identify and engage with underlying investments according to their contribution to Just Transition outcomes.

However, the criteria can also be used by asset owners as a tool to support – among other things – investing in Just Transition-aligned products for externally managed allocations, as well asset manager selection and engagement.

Acknowledging their “critical role in financing a Just Transition” – particularly in the global south – DFIs and MDBs are also encouraged to make use of the tool where appropriate.

“Globally, £2.2 trillion are invested in climate-focused funds,” said Kieron Boyle, chief executive of the Impact Investing Institute. “Within the next five years, we would like to see over half of these investments adopt a Just Transition approach, combining climate action with creating and securing opportunities for people and communities to thrive in a transformed global economy.”

According to the institute, the development of the criteria is an iterative process and it intends to revise them regularly.

A Just Transition Label?

The institute also said it is exploring the launch of a Just Transition label that would “recognise products that can demonstrate fulfilment of the criteria, supported by a common disclosure process and independent verification”.

According to the report, such a label would remain voluntary and be designed to be compatible, to the extent possible, with current labels, while rewarding the integration of environmental-, social- and communities-related outcomes.

As part of the institute’s exploration work, it is further assessing the fund labelling landscape, gauging market interest, and analysing regulatory developments, such as the UK Sustainability Disclosure Requirements (SDR) and related investment labelling regime, and progress towards the EU’s proposed Ecolabel, to “ensure the additionality and interoperability of any potential Just Transition label”.

In parallel, it is also exploring “operational models for a label, building on observed market best practice, looking particularly at possible certification approaches and governance and organisational set-ups”.

If a Just Transition label was established, the institute said it envisages providing a body of resources to support its adoption, for example, advisory services to support applications for the just transition label.