A Plan for People and Planet

Sabrina Muller, Policy Analyst, Sustainable Finance at the LSE’s Grantham Research Institute, explains how financial institutions can support a just transition for nature.

Deforestation, biodiversity and protecting nature were key issues at last year’s COP26 Summit, yet promises and pledges made in Glasgow have so far achieved a “pathetic rate of change”.

Without much greater action, over 90% of major forest, land and agriculture companies that have committed to net zero risk missing their targets because of a lack of progress on tropical deforestation, UN Climate Change High-Level Champion Nigel Topping told London Climate Week in June.

“Are we stupid or are we cowards? Do we have the smarts and the courage to tackle this challenge? It’s time to step up and lead and reap the rewards,” Topping said.

Leaving nature behind

It is widely accepted that net zero cannot be reached without a rethink to our relationship with nature.

But stepping up and reaping the rewards of a nature-positive transition to net zero must, according to research from the Grantham Research Institute on Climate Change and the Environment (GRI) at the London School of Economics, be done with sensitivity to existing industry and communities.

Sabrina Muller, Policy Analyst, Sustainable Finance at the institute and co-author of the research, says the ‘just transition’ to a net zero economy is increasingly understood as “critical to delivering ambitious climate action”, but the focus must be expanded beyond the energy sector and incorporate a much wider set of industries and communities integral to climate and biodiversity.

“To date, efforts to deliver a just transition have focused on the shift to net zero in the energy system. But leading areas including agriculture or deforestation, which have a very clear link to climate and are essential for us meeting zero goals, have been left out of the just transition discussion.”

Muller notes that since approximately one billion people are employed in the agriculture sector – 93% of whom work on an informal basis “there is a huge risk to achieving the UN’s Sustainable Development Goals if these people are left behind in the transition to net zero”.

“The imperative of decent work and social inclusion applies equally to the net zero transition in agriculture, forests and land-use, and for strengthening the conservation of biodiversity. We call this a ‘just nature transition’,” Muller says.

According to the World Economic Forum, a just nature transition could generate up to US$10.1 trillion in annual business value and create 395 million jobs by 2030 across food, land and ocean use; infrastructure and the built environment; and energy and extractives.

Priority areas

The GRI’s research identifies four priority areas for the net zero transition in nature: delivering sustainable agriculture and food systems; ending deforestation; scaling up nature-based solutions; and restoring ocean ecosystems. It contends that financial institutions have a role to play in each facet of delivering a just nature transition, although appreciation of this is nascent.

The research finds examples of relevant initial practices from financial institutions across all four of these sectors, including investor statements calling on governments to set emissions reduction targets for agriculture to green loans for sustainable salmon fishing.

But Muller says: “Even where financial institutions are starting to address the net zero transition beyond the energy sector, the integration of the social dimension lags behind. Explicit reference to the need for a just transition [in policy] remains rare.”

Muller says achieving this just nature transition requires a concerted from the financial sector to include three principles in their ESG approaches:

  1. Integrate human rights and labour standards across climate and biodiversity action.
  2. Anticipate, analyse and address the social risks and opportunities of the transition to sustainability across sectors for workers, suppliers, communities and consumers.
  3. Ensure meaningful participation and partnership through social dialogue with workers as well as wider engagement with other affected stakeholders. This will often involve empowering groups excluded from decision-making, whether by income, gender or race.

Muller says: “It’s essential these social factors are included. If we don’t include them, we’re not going to make progress on managing climate risk fast enough.”

Muller argues financial institutions lack “concrete guidance to help them incorporate the social element to their transition plans”. In response, the GRI is working on a guidance document which will be published before this November’s COP27.

Muller says the GRI guidance will be a broad document that “will not focus solely on nature because even for energy, there’s not a lot of help for financial institutions to incorporate a just transition into their plans”.

She says the GRI will collaborate with current international initiatives such as Glasgow Financial Alliance for Net Zero’s “Credible Transition Net Zero Plans’ guidance, and they will work with the Taskforce on Nature-related Financial Disclosures.

At a national level, the GRI is working with the UK’s Transition Plan Taskforce.

Innovative finance

The GRI has set out five recommendations for financial institutions to secure a just nature transition [see boxout]. Much of the success of these recommendations lies in opening and improving channels of communication between affected parties. These include workers employed in the relevant nature-related sectors and indigenous communities and people.

The report finds that traditions of engagement “tend to be particularly weak between large global businesses and local stakeholders”. Consequently, when designing economic restructuring, “it will be crucial that those affected by change, including for example indigenous groups, vulnerable communities, women and youth, are involved in shaping it”.

Muller says: “There’s a huge opportunity in empowering indigenous peoples for the just nature transition. There’s not enough progress being made now to give them a voice.”

Legislation is needed, but it is not the only route to a more consensus-based approach to change. “Clear commitments and explicit strategies are now required from governments, businesses and trade unions, financial institutions and civil society to accelerate action on climate and biodiversity with workers, communities and consumers at the heart,” says Muller.

She would also like to see more progress from financial providers in delivering innovative products that promote a just nature transition.

The report says: “Innovative financial instruments that combine the environmental and social dimension can have an important role to play in driving positive change towards [a just nature transition].”

Existing examples include Rabobank’s green loan for sustainable salmon in Chile and the Rabo Carbon Bank that capitalise on the growing corporate and investor appetite for carbon credits to support farmers to transition to more sustainable practices.

Muller says: “Work is being done but we’d like to see greater collaboration between public and private sector to build more blended finance initiatives that direct capital to small scale nature-based projects.”

While Muller accepts that a just transition is not yet widely embedded in efforts to deliver net zero in nature-related sectors or in actions to restore biodiversity, “individual examples from policy, trade unions, civil society, business and finance are starting to emerge”.

She expects momentum to build and concludes: “Strengthening the enforcement of human rights and labour standards needs to be recognised as an essential part of delivering climate and biodiversity goals.”

Five recommendations for financial institutions to support a just nature transition

  1. Include just transition principles in their own plans for net zero, nature and biodiversity. The just transition also needs to be incorporated into collective finance initiatives such as those aiming to promote sustainable agriculture, end deforestation, expand nature-based solutions and restore the oceans.
  2. Set just transition expectations of the businesses they lend to and invest in, based on international standards, and ensure these are included in the net zero and biodiversity plans of nature-exposed companies.
  3. Purposefully channel finance to companies committed to and making progress to support a just nature transition for workers, suppliers, communities and consumers.
  4. Engage with policymakers to reform agricultural, forestry and nature policies so that they support a just transition and provide the incentives, rules and catalytic public finance that is needed to scale up private investment.
  5. Work to ensure that social and just transition factors are effectively included in key frameworks for reporting and transparency, such as the Taskforce on Nature-related Financial Disclosures.

Source:Just Nature: How finance can support a just transition at the interface of action on climate and biodiversity’ (Grantham Research Institute on Climate Change and the Environment).

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