World “Lagging” on Just Transition

Panellists warned PRI in Person delegates against the risk of stranded assets, saying society should be prepared for challenges to come.

Progress is heterogeneous. Canada is lagging. The world is lagging.

Those were some of the warnings issued by panellists during a session at this year’s PRI in Person in Toronto examining how to achieve a just transition in emerging markets and carbon-intensive economies.

“The clock is ticking. This transition was supposed to be a marathon, and it’s not anymore – it’s a sprint and we are all late,” said Canadian Senator Rosa Galvez. “There are the planetary limits, and the social new contract that we must sign – we have to see our development within these two limits. Until we have solutions that tackle all crises at the same time and don’t treat them in silos, we will always be at this departure level – trying to do many things but being inefficient.”

On the same day, the Principles for Responsible Investment (PRI) released a paper on socio-economic effects of net zero, introducing an analytical framework for a whole-of-government approach to the just transition.

“There [has been] mixed success. I’m not sure that legislation always solves things. If you want to get off the most polluting fossil fuel – coal – we have to do that right now. We should be willing to invest a lot of money, and we don’t have that much time,” said Catherine McKenna, former Canadian environment minister and Chair of the UN Secretary-General’s High-level Expert Group on Net Zero Emissions Commitments.

Reiterating the need for urgent action in light of limited and disparate progress, the panellists highlighted the central role that the investment community can play – addressing a large crowd of asset owners and managers.

“Investors can have a huge influence in transitioning economies and particular sectors, but we probably can’t do it within the time balance that’s required of us,” said Darron Scorgie, Head of Responsible Investment at pan-African investment group Old Mutual. “That’s the challenge. We don’t have another 20 years to get to the point where you can transition economies. Active engagements with companies do push them a little bit faster, incrementally at best – but it’s still very, very slow.”

Closing the gap

Climate finance will be the dominant theme at COP29 – and specifically, the need to take into account the needs of developing countries in efforts to cut greenhouse gas emissions through a New Collective Quantified Goal. With that in mind, the panel insisted on the need to rectify the Global North/South divide.

“The situation is very different when we talk about the Global North and the Global South,” said Galvez. “We cannot have a second colonisation, because we’re going to need tons of critical minerals, and we cannot go there and repeat the same thing. So we have to show cooperation, solidarity.”

Taking South Africa as an example, Scorgie said many African economies had to budget their economic decisions – choosing to either focus on meeting challenges such as social and economic inequality, poverty and unemployment, or to address global systemic risks such as climate change and biodiversity loss.

“But if we focus on repairing the overarching system, we can achieve both objectives simultaneously,” he argued. “A just transition, or an economic transition that brings clarity, equal opportunity and respects planetary boundaries, can only be achieved through a whole-of-economy or whole-of-government response.”

As an asset owner holding 30-year pension liabilities, Old Mutual’s Scorgie suggested governments and institutional investors needed to take a long-term view of their responsibilities.

“Some of the work we’re doing at the moment is particularly in private markets,” he said. “We’re focusing on getting more renewable energy into the grid. For our extractive sectors (mining and manufacturing), we focus quite aggressively on active ownership and engagement to get firms to prepare transition pathways and strategic plans that not only [include] their own employees and the risk or volatility they may experience – but also the communities in which they’re operating.”

The need for a more holistic and considerate approach to the net zero transition was echoed multiple times throughout the discussion.

“We’re looking at ‘just transition’ from one perspective – but there’s also ‘unjust’ transition going on right now, whether we like it or not,” said McKenna. “We’re going to approach peak oil and gas, and there will be stranded assets and impacts on communities [which] we need to prepare for. We’re not accelerating enough, and people are paying the price.”

Urging the audience to consider such consequences and act fast, McKenna insisted on the need for the investment community to display leadership and ambition.

“We’ve got to get money to these countries – they want to get out of polluting coal, but people need jobs and opportunities,” she added. “We need leadership, and you guys are the leaders here. We have asset owners who are actually demanding action from the folks they invest in. We need to keep people at the centre, but it’s already imperfect – it’s not going to be orderly.”

Considerable opportunities in the renewable energy sector, but listening to developing countries’ needs and using instruments like blended finance to support workers, create jobs and build the future will be key.

“Policymakers have a duty of leadership to us, but [so] do investors and companies,” said Scorgie. “Inviting private investors into public-private partnerships can bridge some of the funding gaps that our national budgets struggle with and get more of society into green, industrialised economies where we can achieve GDP growth, economic development, and more productive and safer communities.”

Better together

Just as two heads are better than one, investors working collaboratively are more likely to have a meaningful impact on the transition than if they go at it alone.

“We see really great examples globally of folks who are doing work on [the] just transition – how they measure it, how they advance,” said McKenna. “It doesn’t mean that you necessarily sell off all fossil-fuel assets, but you need to figure out how to decarbonise in a way that is fair to communities and workers while bringing in capital at the scale and timing that’s needed – which is extremely short right now.”

The panellists also encouraged investors to have dialogues with policymakers and governments to define the tools they need to complete the transition – including blended finance, green taxonomy and carbon pricing.

“If you believe that policy is important, I cannot emphasise enough that you not only have to have secret, quiet meetings,” said KcKenna. “You need to actually come together as groups of high-ambition coalitions and say to your government – we actually believe the transition needs to be equitable everywhere, and there are massive economic opportunities for investment institutions and for everyone.”

Engagement on both fronts – with government and business – is crucial, agreed Michael Cohen, Chief Investment Operating Officer at the California Public Employees’ Retirement System (CalPERS) – adding that CalPERS “constantly advocates for great disclosure”.

While Europe is ahead in terms of standardising disclosures, the US leads on government subsidy programmes – notably through the Inflation Reduction Act. “We have differentiation among approaches of government,” he said.

Cohen, also Steering Committee Chair of Climate Action 100+, said the investor-led initiative would publish a benchmark later this month looking at the effectiveness of business lobbying on climate policy.

“It’s really about engagement with the businesses, finding common solutions to the climate crisis and figuring out where there is added value to our investments,” he added. “In all of these issues, it’s not one simple thing. It’s picking all of the nuances up. You need to use every solution at your disposal: government action, as well as businesses advocating on their own behalf to make the climate transition profitable for themselves [and for everyone].”

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