This paper was published in partnership with the Observatoire de la responsabilité sociétale des entreprises (ORSE), a multistakeholder organization seeking to accompany corporates in their corporate social responsability strategies.
The notion of “Just Transition” stems from the belief that a transition to a cleaner, more sustainable economy must be conducted in a way that is fair to all stakeholders: workers, consumers, local communities and society at large. In this light, providing decent and quality jobs to workers all along companies’ supply chains will be absolutely critical if we are to successfully embark on a Just Transition. In this regard, the private sector, and more specifically the financial industry, also has a fundamental role to play to ensure that a Just Transition takes place across sectors and industries.
This paper, part of a “Stakeholders of the Just Transition” series, aims to assess the ways in which financial actors can better incorporate the dimension of workers into their strategies, to mitigate risks associated with the transition and maximize the opportunities it can bring about. Three areas for action have been identified: the integration of indicators linked to career management and social dialogue into investment and financing frameworks, continuous engagement with companies on themes related to social inclusion and employment, and the development of innovative Just Transition instruments across asset classes. In line with the Just Transition roadmap established by Finance for Tomorrow, its members are dedicated to making these developments possible by supporting the emergence of Just Transition methodologies and indicators, encouraging engagement policies and the development of multistakeholder initiatives, as well as promoting financial innovation.
The financial sector has increasingly started to acknowledge that broad and deep socioeconomic changes will occur as part of a shift to a low-carbon economy. These evolutions include sector restructuring, loss and transformation of jobs, impacts on taxation and redistribution, increases in prices, among others. Additionally, these developments are occurring in an already difficult social context, characterized by increasing levels of inequality, decreasing middleclass living standards and labor market polarization1.
The concept of the “Just Transition” aims to tackle this very issue. The International Labor Organization (ILO) defines the Just Transition as a strategy seeking to mitigate the negative social consequences of transitioning towards sustainable economic models and to maximize the positive aspects of a transition to a low-carbon economy.2 The concept first emerged in the 1970s in the United States, as a reaction to changes faced by labor unions with the emergence of the first environmental regulations.
Originally a defensive strategy employed by sectors negatively affected by these new laws, it progressively became a proactive one that extended beyond the U.S. More recently, the Just Transition was reinvigorated in the period leading up to the Paris Agreement, as labor unions worked hard to include this concept in the 2015 climate deal. That same year, the UN’s Sustainable Development Goals took the Just Transition agenda into consideration, notably through Goal 8 (“Decent work and economic growth”) and the International Labor Organization produced a policy framework for the Just Transition.3 4
The Just Transition involves a variety of stakeholders. As put forward in Finance for Tomorrow’s 2020 position paper, a just and inclusive transition must strive to achieve sustainable economic models that address four different dimensions: workers, local communities, consumers and society at large.5 The first of a series of four, this paper aims to tackle issues faced by workers in sectors most affected by decarbonization plans. This dimension is crucial, as taking labor considerations into account in the environmental transition will be a prerequisite for this very transition to take place. The “Yellow Vests” movement in France provides a salient example of this, as protesters framed the unrest as a social backlash to the government’s climate policies. In this context, it seems clear that the transition to a low-carbon and environmentally-friendly economy must be thought out in a way that does not compromise the basic rights of workers, both those within the company’s workforce and those all along its supply chain.
The aim of this paper is three-fold:
- Understand the role of the financial sector in promoting objectives in line with the Just Transition;
- Assess the current approaches used by investors to take the dimension of workers into account;
- Explore new avenues of work to better integrate this dimension into investment practices and strategies.
1 Under Pressure: The Squeezed Middle Class, OECD, 2019 https://www.oecd.org/social/under-pressurethe-squeezed-middle-class-689afed1-en.htm
2 ILO, https://www.ilo.org/global/topics/green-jobs/ publications/WCMS_432859/lang--en/index.htm
3 UN Sustainable Development Goals, https://sdgs.un.org/goals/goal8
4ILO, https://www.ilo.org/global/topics/green-jobs/ publications/WCMS_432859/lang--en/index.htm 5 Finance for Tomorrow Position Paper (October 2020) “Making a Just Transition: the Roadmap of the Paris Financial Center”
5 Finance for Tomorrow Position Paper (October 2020) “Making a Just Transition: the Roadmap of the Paris Financial Center”