Framework seeks to create a shared understanding on a just transition; investors hope broader definition will help channel capital to developing markets.
The Just Transition Criteria has been launched this week to help investors design financial products and identify investments aligned with a just transition to a net zero economy in both emerging and developed markets.
It has been designed by the UK-based Impact Investing Institute in collaboration with 21 institutional investors, including UK pension fund Nest and asset managers Ninety One and Schroders, which collectively control of £4 trillion in assets. NGOs and social investors also contributed to the design.
The Just Transition Criteria is based on three elements of a just transition, as defined by the G7-backed Impact Taskforce: Advancing climate and environmental action, improving socio-economic distribution and equity, and increasing community voice.
It has been designed to be used with existing standards and frameworks for sustainable and impact finance such as the UK’s Financial Conduct Authority’s proposed Sustainability Disclosure Requirements and investment labels as well as the EU’s Sustainable Finance Disclosure Regulation.
Work is now underway to explore the feasibility of a Just Transition fund label to accompany the criteria.
Commenting on the launch at the Net Zero Deliver Summit this week, Dr Kay Swinburne, Vice-Chair of Financial Services, KPMG UK, said that the Just Transition Criteria had been designed to apply to different types of economies and across different areas of financial services. “This isn’t just about the investor community. It’s about banks. It’s about insurance companies. Everyone has a part to play,” she said.
Global South context
In developed countries, the just transition concept has largely been developed as a set of criteria for ensuring the transition to a low-carbon economy takes into consideration the needs of employees, customers and other stakeholders of fossil fuel energy providers. But the term is increasingly used to encompass ‘climate justice’ in a wider sense, accounting for the needs and populations of populations globally.
Speaking at the same event, Baafour Otu-Boateng, Investment Director at Kenya-based KawiSafi Ventures, said this approach was important for the just transition in a Global South context. He said access to capital was an acute problem, due in part to continuing economic pressures from Covid-19 and climate impacts becoming more severe.
He added that related to the problem was a lack of clarity of what a just transition is. “There is a lot of information asymmetry. There is no one coherent framework to help asset owners and asset managers on the ground understand what to do. And that’s why I’m excited about the Just Transition Criteria,” said Otu-Boateng.
“Now we have a list a clear framework that cuts across geographies, cuts across asset classes, cuts across investment strategies, and presents us with the way by which we can clearly see how investments are directed towards advancing climate action, improving socio economic distribution, and increasing community voice.”
The problem of access to capital for the Global South was running theme throughout the Net Zero Deliver Summit. During a panel on voluntary carbon markets, Bogolo Kenewendo, Special Advisor, Africa Director, Climate Champions Team, said while the market made over US$2 billion in 2022, less than 3% of that has gone to the continent of Africa, and only about 11% of total offsets that retired in the last 10 years are from African projects.
She said: “We know that the continent is a custodian of 25% of all major assets that are providing the largest carbon sink in the world…… there’s clearly a big injustice here. And we are failing in the market to respond to exactly what it is that is safeguarding the world.”
Ending the summit, Prime Minister of Barbados Mia Mottley said an “honest and frank conversation” was needed on matters of climate justice, financing a just transition and the transformation towards reaching net zero.