Fiona Reynolds
CEO, Principles for Responsible Investment
In the wake of COP26, as we work towards a net zero economy industries will be altered and so we must ensure we do not leave workers in affected areas behind.
In the investment community, we spend a lot of time discussing stranded assets, such as the coal that will be left in the ground as we transition to low-carbon economies. However, if poorly managed, the transition to a net zero future could result not only in stranded assets in a physical sense, but also in other assets, such as stranded workers and communities – contributing to increasing inequalities and economic stagnation.
If we do not take people with us on the journey to a green economy, we simply will not get there in time.
The just transition
The just transition is an integral aspect of the Paris Agreement that asks investors, corporates and governments to anticipate, manage and mitigate the social implications of the transition to a low carbon economy on workers, communities, consumers and society more broadly. Investors and businesses must ensure that net zero commitments have a strong social component from the get-go, encouraging the creation of high-quality jobs and fair wages. If we do not take people with us on the journey to a green economy, we simply will not get there in time.
The ‘S’ in ESG
Historically, the climate crisis and human rights issues have been considered separately by investors. With social issues, including human rights, often dismissed as immaterial or a lesser priority. However, COVID-19 has shown investors the interconnectedness of systems and demonstrated the materiality of social issues. In particular, the pandemic has magnified existing labour rights challenges that underpin the systematic inequalities that are painfully evident today. Investors have seen first-hand that the systems they operate in – work, financial and environmental systems – are all inextricably interconnected and that we cannot have a healthy economy without a resilient workforce and communities. As a result, we have never seen our global signatories so engaged with social issues. At COP26, we were pleased to witness the formal launch of the Investors for Just Transition coalition organised by Finance for Tomorrow, the first global coalition of engagement around the just transition. In addition, over 30 countries signed the Just Transition Declaration developed by the COP26 Energy Transition Council. While this progress is promising, we need to see more ambition and action from investors on the climate crisis and human rights as we continue to grapple with the decarbonisation of our economy and work to ensure a fair and inclusive future for all.