Bella Landymore, Joint Interim CEO, Impact Investing Institute, and Brendan Curran, Policy Fellow at the Grantham Research Institute, explain how the Transition Plan Taskforce is supporting UK businesses to draw up fair and inclusive transition plans.
For the UK to meet its legally binding commitment to move to a net zero carbon economy, huge changes are required. Companies, but also asset managers and asset owners, have a crucial role to play in that transition. Starting this year, listed companies and large regulated asset owners and asset managers will be required to publish transition plans – action plans for how they will be changing their businesses to operate in and support a net zero carbon economy. To support those efforts, the UK’s Transition Plan Taskforce (TPT), a government initiative with industry representation, is developing a ‘gold standard’ for private sector transition plans.
Fair and inclusive
It is essential for these transition plans to include guidance on how companies, asset managers, and asset owners can work towards net zero, but to also do so in a fair and inclusive way. We want to see a just transition – one which is fair and inclusive to everyone concerned, creating decent work opportunities for those transitioning out of high carbon jobs as well as those transitioning into the net zero economy, and leaving no one behind – being reflected in transition plans.
Negative social consequences of this monumental transformation of our economy, such as job losses and changes to local communities, need to be mitigated and turned into opportunities. If we do not put ‘people’ at the heart of what we do, there is a risk that there will not be the public acceptance needed to make the necessary changes, or that the transition to a net zero economy will not happen at all.
But we hear time and time again from companies and investors who are struggling to identify and mitigate the social risks of the net zero transition. Data availability, limited staff knowledge and resources, and a lack of standardisation around how to measure the just transition, are all reported as barriers to tackling this major problem. This is evident across the wider market: in the ESG Global Survey 2021, 51% of investors rated social factors as the most challenging to analyse and integrate into their decision-making, in keeping with previous surveys.
Yet there is huge appetite for action within the private sector, with awareness of the risks of an un-just transition increasingly mainstreamed across both corporate and financial institutions. In the UK, the Globally, over 11,000 real economy companies, with a total market capitalisation of over £650 billion, joined the UNFCCC Race to Zero campaign in 2021 and agreed to “phasing down and out all unabated fossil fuels as part of a global, just transition.”
Just transition guidance
So, how can we best help businesses in this monumental task, for which there is so much interest? The TPT has appointed the Impact Investing Institute and the London School of Economics’ (LSE) Grantham Research Institute to co-lead a working group focused on how the ‘just’ element of a transition can best be reflected in the action plans companies will have to draw up to make their businesses carbon neutral. The guidance produced by the group, which will be made up of members from the financial services industry, the real economy, and civil society, will look at areas including metrics, innovative financial products, remuneration policies, and due diligence.
Research from both the Impact Investing Institute and the LSE’s Grantham Research Institute has highlighted the crucial role that the financial sector has to play in delivering a just and inclusive transition to net zero. Both financial services firms and the companies producing the goods needed to keep our society going will need buy-in from workers, communities, supply chains and consumers if they are to be successful in transitioning their business to a low carbon future.
More than an accounting exercise
The announcement of the Just Transition Working Group by Baroness Penn, Treasury Lords Minister and Co-Chair of the TPT, shows the importance of social considerations as we move towards a more climate-friendly way of doing business. It leaves no doubt that the work of the TPT has great potential and could pave the way for the UK to become a world leader on transition plans that attempt to answer difficult questions around how to integrate wider sustainability factors beyond carbon reduction, such as the just transition as well as nature and adaptation.
The good news is that there are businesses who are already doing this. At a TPT event in February 2023, Rachel McEwan, Chief Sustainability Officer at the energy company SSE plc, said: “Achieving net zero is not some technocratic carbon accounting exercise. This is about people: colleagues, communities, and customers.”
Now we just need to work together to make this ambition a reality.