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A new way of ESG integration needed to avoid climate change “stranded workers” – draft guidance

New draft investor guidance for the ‘just transition’

A new way of integrating ESG into investments will be needed to avoid workers and communities being “stranded” by climate change, according to new draft guidance for investors backed by the Principles for Responsible Investment and the International Trade Union Confederation (ITUC).

The draft guidance calls for the so-called ‘just transition’ – a phrase included in the Paris climate agreement – to be integrated into the procurement of investment services “across all asset classes” to signal demand. It also suggests that the Taskforce on Climate-related Financial Disclosures (TCFD) should be extended to include the social dimension.

The draft report, seen by Responsible Investor, has been prepared by the Investing in a Just Transition project. The project is led by the Grantham Institute at the London School of Economics and the Initiative for Responsible Investment (IRI) at Harvard — with funding from the PRI and the Friends Provident and Surdna foundations. The final report is due to be published in December.

The project’s Advisory Committee is co-chaired by ITUC’s Sharan Burrow and the PRI’s Fiona Reynolds and its members include pension fund figures like CalPERS’ Anne Simpson and AP1’s Nadine Viel Lamare amongst several well-known industry names.

The draft report was written by Nick Robins, Vonda Brunsting and David Woods. Robins is the former HSBC executive who was co-director of UN Environment’s Inquiry into a Sustainable Finance System. He’s now Professor in Practice for Sustainable Finance at the Grantham Institute.

Brunsting is Program Manager for the Just Transition Project and was formerly Director of the Capital Stewardship Program at Service Employees International Union (SEIU), the 1.9m-member North American labour union. Woods is the Director of the IRI.

“The just transition is a new and emerging agenda for investors,” the draft guidance states; it refers to an investor statement, being prepared by the PRI, in support of a just transition on climate change.“There is an increasing recognition that the social dimension of the transition to a resilient and low-carbon economy has been given insufficient attention, notably in terms of the implications in the workplace and wider community,” it says.

“The just transition is a new and emerging agenda for investors”

“Investors can make an important contribution as stewards of assets, allocators of capital and influential voices in public policy to make sure that the transition produces inclusive and sustainable development.”

The guidance, which follows an earlier policy note back in June, draws on examples from investors such as Generali, Ircantec, DWS and Fonds de Solidarite FTQ.

The draft guidance highlights a “concern that the failure to effectively manage the social dimension of the climate transition could generate a new set of investment risks in terms of political instability, depressed economic activity and insufficient progress in the delivery of climate targets”.

“Looking ahead, investing in a just transition is set to be the best way to manage the strategic risks and opportunities that flow from the shift to a prosperous, low-carbon, resilient and inclusive global economy.”

The guidance says next steps for investors include:

• Incorporate the just transition into policy on responsible investment and climate change
• Integrate the just transition into procurement of investment services across all asset classes
• Engage with companies
• Participate in initiative to channel capital into community renewal
• Promote disclosure by companies and others under the TCFD framework “and extending this to include the social dimension”.