Climate change: How investors can help deliver a Just Transition

Executive summary

• Climate change is well understood as a systemic risk, but there is less understanding of how the transition to a low-carbon economy might affect society
• A Just Transition would seek to leave no one behind and ensure the consequences of associated changes are fairly distributed. Moving to low-carbon energy, buildings, transportation and industrial production will bring dramatic adjustments and challenges to countries and industries – and therefore to workers and their communities
• A failure to anticipate the social implications of those challenges could stall climate progress and contribute to political instability through increasing inequality. This risks disrupting the fragile equilibrium between developing and developed economies
• In this paper we consider how to encourage companies to incorporate the Just Transition into business strategies, and explore how, as an asset manager, we might start to integrate this nascent concept into our investment decision making
• This will require different approaches for different sectors – but it will certainly entail a consideration of how business models are evolving, how human capital is managed and how companies develop their role as employer and stakeholder. Issues of accessibility and affordability must also be integrated in our assessment.
• The Just Transition has broad implications for the asset management industry. A world in which these issues are not addressed is a world of sustained political instability, in which it is difficult to be invested due to a risk/return imbalance. This deserves a separate and specific view, from a top-down perspective including monetary and budgetary policies