This blog is co-authored by Julie Segal, Senior Program Manager, Climate Finance and Alienor Rougeot, Program Manager, Climate and Energy at Environmental Defence.
The term “just transition” is now front and centre in the business mainstream, following in the footsteps of “sustainability” and “net-zero”. Financial institutions promote their alignment with a “just transition” in marketing documents, strategies, and conference panels – but they seem to miss the real meaning. Just transition isn’t just another buzzword, so financial institutions who use the term have to live up to what it really means.
What’s a “just transition,” again?
Canada needs a strategy to reduce its greenhouse gas emissions, which must include phasing out high-carbon sectors like the fossil fuel industry. But it’s not fair to close down industries without a plan for the workers, families and communities who are directly impacted. We need to ensure that no worker or community is left behind in the climate transition. This means creating new job opportunities, ending industry-related environmental racism like tailing ponds, building new roots for economic stability, and protecting communities that are vulnerable to climate related disasters like floods and wildfires. All of this must happen while, at the same time, implementing strategies for climate solutions.
A just transition means that as we pivot away from high-carbon industries, solutions are proactively put in place to protect communities and ensure that all community members have employment opportunities – so that in the transition to low-carbon, no one is left behind.
The Government of Canada has promised a Just Transition Act, which is an important step towards solutions that workers and communities need. But private finance also needs to support a climate transition that puts people first. Local workers and communities need to be on board for the energy transition, and vulnerable regions need to be supported to invest in mitigation and resilience. This buy-in from workers and communities is essential for a quicker and smoother transition to a safe climate.
Why should the financial sector care? Climate change poses a risk to the financial system – reducing climate related damage will reduce the risks to the financial system. And even scientists agree that climate justice is essential to climate action. The financial sector seems to get this, since it repeatedly uses “just transition” language. But it is critical that finance aligns with what this truly means. The financial sector should lead by listening, and then respond by putting money in the right place.
Why must Canadian financial institutions do better when approaching the “just transition”?
Investors are picking up the language but missing the meaning. Many investors talk about a just transition while, in the same breath, endorsing the industries that are causing the climate crisis. For example, investors used the premise of transitioning high-carbon industries to draft guidelines that greenwash new fossil fuel investments and false solutions like carbon capture. This is not the way to support workers, industry, and communities in Canada. Right off the bat, the financial sector’s purported efforts miss the two core principles of a just transition:
- Those most affected must be at the table crafting transition plans, and
- A just transition requires early action to end reliance on fossil fuel related infrastructure.
Although financial institutions are the ones moving capital, they must learn the proper definition of a just transition from those most affected: workers and communities whose livelihoods are still tied to high-carbon industries.
Furthermore, a just transition means reducing the economy’s dependence on carbon-intensive activities. Without sufficient planning, the people who currently rely on work from the fossil fuel industry would be left in a precarious position – having to pack up their bags without any fair warning. By prioritizing a just transition away from high-carbon industries, people can have a heads up and a head start.
Lucky for the financial institutions, we were able to collate some key principles that should guide investing for a just transition.
How should Canadian financial institutions approach the “just transition”?
Many parts of Canada’s economy have a future in a low-carbon world. Even though we must move off high-carbon fossil fuels, we still need food to eat, electric buses to ride, and buildings to live in. It’s therefore productive to reduce emissions in sectors like agriculture, clean energy, transportation, and cement. We also need to invest in infrastructure that is resilient to climate damages. For financial institutions who actually align with a just transition , here are some minimum factors for investing in companies (based on common perspectives from environment and labour groups):
First, a company should work towards reducing the economy’s reliance on fossil fuels, demonstrated by:
- Having a credible pathway to eliminating emissions, including indirect ones,
- Having short-term targets to reduce emissions, starting from 2025, and
- Advocating in policy conversations for an ambitious, equitable, and planned transition to low-carbon alternatives.
Second, a company should support workers to thrive in the new economy by:
- Creating jobs in the clean economy with good wages, pensions, and employment security,
- Encouraging and funding workers in fossil fuel sectors to upskill and reskill, and
- Guaranteeing fundamental rights, including the ILO core labour standards and ILO occupational health and safety standards
Third, a company should respect local communities by:
- Budgeting to clean up any waste from stranded assets, prioritizing clean up costs over shareholder distributions,
- Supporting new economic activities in communities that previously relied on a single fossil-related industry,
- Engaging groups and individuals that have historically been marginalized from economic opportunities, such as by respecting UNDRIP, and
- Investing in local infrastructure that is resilient to climate damage, when applicable.
Throughout each of these steps, investors must prioritize engaging with workers and communities – the most important stakeholders in a just transition. Our friends in the labour movement often say: “If you’re not at the table, there’s a good chance you’re on the menu”. Financial institutions need to bring the labour and environmental community to the table.
The financial sector can, and should, contribute to the just transition strategy. However, to avoid stranding physical assets (like pipelines) and stranding people, financial institutions must stop supporting a carbon-reliant economy. Instead, it is time they mindfully listen to workers and communities and put their money where the future is: a transition plan that gets us to a green and just economy.