Investors and banks tell UK government to develop investment standards for Just Transition

Multiple investor-led initiatives have developed best practices on the topic but have not received regulatory backing

Legal & General, Aviva Investors, HSBC and Barclays are among the members of a group urging the UK Government to develop ‘Just Transition’ definitions and priorities to support investment into areas that would benefit workers and communities currently dependent on high-carbon sectors.

The proposal is a key component of a policy framework published by the Financing a Just Transition Alliance (FJTA), a UK-based group led by the London School of Economics. Other members include Lloyds, Bridges Fund Management, Aberdeen Standard, the UK Sustainable Investment Forum and Principles for Responsible Investment. 

Formed in 2020, the body seeks to identify ways in which the UK financial sector can support the Just Transition – an umbrella term for ensuring that the benefits and costs of shifting to a low-carbon economy are distributed fairly. 

The FJTA is calling for the creation of a UK-wide Just Transition Commission to help develop Just Transition investment standards that consider regional funding needs. It also wants financial regulators to introduce social reporting requirement for companies.  

The move comes as the UK vies for a leadership position in the race to develop sustainability disclosure standards. It has created national standards on biodiversity-integrated accounting and sustainable investment management, with a third standard for ESG investment funds planned for 2022. It is also in a bidding war with Canada, Japan and others to host a sustainability-standards body currently being set up by the International Financial Reporting Standards Foundation. 

To date, several investor groups including Climate Action 100+, Climate Engagement Canada and France’s Finance for Tomorrow have initiated efforts to compile best practices and investor expectations for companies on the Just Transition, but none have so far received regulatory backing.

The FJTA also echoed a call made on RI last year by academic and initiative coordinator, Nick Robins, to issue green sovereign bonds that consider the Just Transition by investing in projects which support job creation, SMEs and low-carbon housing.  

For investors, the FJTA report sets out a framework for engagement which incorporates the Just Transition into board-level oversight, remuneration policies, scenario analysis, risk management and capital expenditure. It also provides an overview of what constitutes “good jobs and decent work in the transition” and a guide to carrying out supply chain due diligence. 

Finally, the FJTA backed the distribution of a ‘carbon dividend’ – a payment, funded through a corporate carbon tax, to low-income householders to offset higher energy costs associated with the green transition. Austria implemented such a policy earlier this month, and it is one in a series of measures that governments around the world are considering in a bid to impose a cost on corporate emissions without penalising consumers.  

The FJTA report comes in the same week that global energy watchdog the International Energy Agency (IEA) published recommendations aimed at helping governments design clean energy policies which support the Just Transition, out today.

The policy paper was developed by the IEA’s Global Commission on People-Centred Clean Energy Transitions, a 30-strong panel of energy sector executives, policymakers and civil society representatives led by Danish Prime Minister Mette Frederiksen. 

Separately, the UK government announced yesterday that developed countries have failed to meet their pledge to provide $100bn per year in climate funding to developing countries, ahead of next week’s COP26. The financing target, which was initially set for 2020, has now been pushed to 2023.

The government said that the failure was in part due to private climate investments which “underperformed against expectations”, but noted that the 2023 target would no longer be reliant on increasing private investment.  

Recent fund data from the Institute of International Finance showed that emerging markets strategies received less than 5% ($4.8bn) of global inflows into ESG-labelled funds.