Not Just Yet
Shafaq Ashraf, Climate Action 100+ Project Lead at the Transition Pathway Initiative Centre, says few corporates are currently supporting a just transition.
The investor-led Climate Action 100+ (CA100+) initiative’s Net Zero Company Benchmark, a strategic tool to inform investor engagement, provides annual updates on the climate performance of 150 of the world’s largest corporate greenhouse gas (GHG) emitters. Recent results indicate that companies have made meaningful improvements in setting long-term emissions targets, but struggle in critical areas such as green capital expenditure and just transition.
Specifically, on the imperative of a just transition, investors expect companies to decarbonise while acknowledging and mitigating the social impacts of their transition strategies. Indicator 9 of the CA100+ benchmark evaluates corporates’ just transition commitments and plans through a set of metrics based on whether a company has:
Committed to decarbonise in line with defined just transition principles, recognising the social impacts of its decarbonisation efforts;
Committed to retain, retrain, redeploy and/or compensate workers affected by its decarbonisation efforts;
Committed that new projects associated with its decarbonisation efforts are developed in consultation with communities and seek their consent;
Developed a just transition plan for how it aims to support workers and communities negatively affected by its decarbonisation efforts;
Developed a just transition plan in consultation with workers, communities and other stakeholders affected by decarbonisation; and
Disclosed the key performance indicators (KPIs) it uses to track its progress.
Committing to a just transition
Analysis revealed that a quarter of companies fully commit to transitioning in line with defined just transition principles. Many others partially meet the criteria, with 6% committing to just transition without defined principles and 7% defining principles but lacking a commitment. Companies often define just transition principles themselves, but draw on external guidance such as the International Labour Organisation’s Guidelines for a Just Transition.
Only 23% of CA100+ focus companies commit to retraining or compensating workers affected by the company’s decarbonisation. Within this subset, most companies opt for retraining and reskilling their workforce rather than offering compensation. A standout example is French automobile company Renault, which established ReKnow University to equip its employees with skills for the future.
Alongside workers, communities are key stakeholders in ensuring a just transition. Only two CA100+ companies, OMW and Repsol, commit to developing decarbonisation projects in consultation with affected communities and seeking their consent. The UN Declaration on the Rights of Indigenous Peoples offers an authoritative definition of consent, stating that it must be “free, prior, and informed”. Committing to obtain consent is a much higher bar compared with committing to undertake consultations, which only 12% of companies do.
Looking beyond the remit of the CA100+ benchmark, more concrete precedence for genuine community participation is emerging. For instance, NWP Coal Canada has agreed that the Tobacco Plains Indian Band, an Indigenous community, will have the right to veto their proposed mining project.
Planning and tracking
To scrutinise the credibility of commitments, the CA100+ benchmark evaluates just transition planning. Only 10% of companies have devised just transition plans. From the subset of companies with just transition plans, only five (3%) have developed these plans in consultation with key stakeholders. A just transition plan must be developed with all relevant stakeholders, particularly workers and communities, to be deemed inclusive.
Only two companies underpin their plans with quantifiable KPIs. Enel has stated that “70% of people leaving coal-fired plants will be redeployed, participating in upskilling and reskilling programmes by 2025”. The remaining 30% will be included in early retirement plans. Setting KPIs is fundamental to monitoring companies’ progress towards implementing just transition plans, but it remains a scarce practice.
Regional contexts
Climate assessment tools remain insufficiently nuanced for entities operating in emerging markets. While the vocabulary of just transition has arrived in most developed markets, it has only more recently appeared in emerging economies. As a result, companies based in emerging markets may not yet have explicit disclosures on just transition but are potentially engaged in relevant activities.
Among CA100+ focus companies, there are 15 firms headquartered in emerging economies: six in India, three in Brazil, three in Indonesia, two in South Africa and one in Nigeria. Currently, all but three of these companies score ‘No’ on the entire just transition indicator. The three companies scoring ‘Partial’ are NTPC, Eskom, and Sasol. Sasol scores on the most metrics as it commits to a just transition, commits to retrain or compensate workers affected by decarbonisation and has developed a just transition plan.
Evidently, committing to just transition is challenging for companies based in emerging economies. As such, comparing corporates in emerging markets to those in developed markets within the same framework can result in a bias, with the former persistently performing worst in class. The scope and context of just transition must be regionally calibrated within assessment methodologies and investor practices to compare companies across regions better. Relevant approaches for integrating such nuance into climate assessments, in general, might include indicator exemptions and using more granular regional pathways for quantitative benchmarking.
The just transition imperative
Just transition has become a key consideration to achieve net zero. While decarbonisation must accelerate, corporate and public actors need to devote appropriate resources and develop detailed policies to ensure the transition does not increase poverty, inequality, and social exclusion.
Results from the CA100+ assessments show that while corporate just transition commitments are becoming common, very few are underpinned by detailed plans, inclusive processes and trackable KPIs. Companies operating in emerging economies appear to be lagging on just transition commitments and planning. Determining whether this stems from a lack of ambition, comparatively lower labour protection standards or a gap in the assessment approach requires further research. Protecting workers and communities in developing nations is of the greatest importance: if left unaddressed, there will be no truly just transition.
This article was co-authored by Antonina Scheer, Policy Fellow, and Sangeeth Selvaraju, Policy Analyst, at the London School of Economics’ Grantham Research Institute on Climate Change & the Environment.
The post Not Just Yet appeared first on ESG Investor.
