Investor coalition developing Just Transition label for investment products

Scottish Widows, Schroders, Railpen, Nest and the Environment Agency Pension Fund are amongst the founding participants of a £3.6 trillion coalition that will seek to develop a Just Transition label for investment products to help direct capital flows towards the issue.

Launched on Monday at the Finance for Impact Summit by the Impact Investing Institute, the Just Transition Finance Challenge brings together public and private asset owners, asset managers, development finance institutions and advisers who are committed to financing a Just Transition.

The phrase is an umbrella term for ensuring that the benefits and costs of shifting to a low-carbon economy are distributed fairly.

The group plans to release a draft of a common set of criteria that will underpin a new label for public and private asset owners and asset managers, which will be open to public consultation this summer. The label will be designed to recognise investment products that deliver the three critical elements of a Just Transition: climate and environmental action, socioeconomic equity and distribution, and community voice.

According to a statement, the institute is also supporting founding participants to include these criteria in designing financing vehicles and investment mandates across major asset classes, and both developed and emerging markets.

Maria Nazarova-Doyle, head of pension investments and responsible investments at Scottish Widows, told Responsible Investor: “The Just Transition concept must be incorporated not just in the stewardship of companies, but also in investment strategies to enable capital flows towards companies which are good at managing not only their environmental impacts, but social too.” 

She continued: “It’s easier said than done and no investor has the answer currently of how best to do it. That’s why by working together and pooling resources we think we can dynamically learn from each other and devise parameters that would help investors who care about the social implications of the net-zero transition to make capital allocation decisions. After all, where the money flows, things get done.”  

In May, Nazarova-Doyle explained to RI that the UK pensions and insurance giant was in dialogue with asset managers on the issue and also intended to engage investee companies. 

On how this work was going, she noted that regarding portfolio firms: “We are in the planning stage. This will form part of our continued engagement with the highest-emitting companies in our portfolio that sit outside of the focus of CA100+, and we are due to have the next round in the next couple of months. In this upcoming round, we will incorporate Just Transition expectations explicitly as part of our engagement.” 

‘Expression of wish’

In terms of asset managers, Scottish Widows has shared its voting guidelines with all of them as an “expression of wish”, Nazarova-Doyle said. “These guidelines are asking them to consider voting against say on climate, the report and accounts, and/or re-election of directors or members of a relevant committee if there is no disclosure to indicate that the company incorporates the impacts on employees, communities and other stakeholders into its climate transition strategy and planning.” 

Returning to Monday’s announcement, Nazmeera Moola, chief sustainability officer at fellow participant Ninety One, said the investor already has two funds in development that would aim to use the label and that it will use the framework in the development of strategies that will invest in the transition in emerging markets. 

The challenge is now closed to new participants until the first slate of products are announced later this year. 

Also at Monday’s summit, KPMG launched a set of recommendations to advance finance for social impact. 

Through a consultation with the financial services sector, several key areas to prioritise were identified, including: the development of consistent social impact goals; guidance on social impact disclosures; improving transparency; consistency in available frameworks and metrics; and progress on regulatory responsibilities.