What is a just transition, and why is it important?

2.2 What is a just transition, and why is it important?

The idea behind a just transition is to ensure the energy transition is fair and inclusive. We cannot get to net zero without both collaboration and innovation to bring everyone along with us. This stretches from emerging markets, to disadvantaged social groups and supporting brown sectors in becoming green.

“A just transition means greening the economy in a way that is as fair and inclusive as possible to everyone concerned, creating decent work opportunities and leaving no one behind.” 10

International Labour Organisation

Although transitioning away from carbon-intensive activities presents all the potential social and political tensions associated with moving from one economic model to another, on the flipside there are huge opportunities available around creating decent, sustainable work opportunities through infrastructure development and reskilling programmes. The World Economic Forum estimates there will be 10.3 million net new jobs globally by 2030 in clean energy, by far outweighing the 2.7 million jobs lost from fossil fuel sectors.

Despite the scale of the opportunity, the size of the investment gap is enormous – and is greatest in emerging markets. Driven in part by the impacts of COVID-19, 2020 witnessed a great accumulation of private wealth combined with rapid inflows of capital into green or ESG linked financial products. However, this was mainly concentrated in developed economies; emerging markets received only 20% share of total investment into clean energy. Meanwhile the Paris Agreement target for developed economies to invest $100bn annually into transitioning emerging markets has been missed every year since 2013.

More than $130trillon in AUM is now committed to net zero; despite this, the investment gap is still enormous – and is greatest in emerging markets 14

10 International Labour Organisation, Frequently Asked Questions on just transition (ilo.org)

11 World Economic Forum, March 2022, Here’s how clean energy will change the global jobs market | World Economic Forum (weforum.org)

12 IEA (International Energy Agency) in collaboration with the World Economic Forum and the World Bank, Financing Clean Energy Transitions in Emerging and Developing Economies, 2021

13 UK Parliament: House of Commons Library, November 2021, COP26: Delivering on $100 billion climate finance (parliament.uk)

14 Amount of finance committed to achieving 1.5°C now at scale needed to deliver the transition | Glasgow Financial Alliance for Net Zero (gfanzero.com) , IEA with the World Economic Forum and the World Bank, Financing Clean Energy Transitions, 2021

Emerging and developing markets are typically producer economies: highly dependent on their local natural resources for economic health, and with that, their political and social stability. These are also the markets that are set to drive the lion’s share of emissions growth going forwards due to faster rates of population growth, urbanisation and industrialisation. Driving responsible investment into these markets will be key to supporting them in achieving sustainable growth, whilst avoiding local resistance and political fragmentation.

Making the economics work for investors will be critical to addressing this imbalance, and the market is working hard to develop new solutions to do so. One clear opportunity here is the scaling up of blended finance models to de-risk investments for private capital with both public and philanthropic sources.15 With its strong track record for innovation, global network and fast, flexible approach, Guernsey can play a differential role in developing such solutions.

Doing so raises some key questions and challenges to explore:

What does net zero actually mean for financial services firms, and how can they support the wider economy in getting there?

How to define “transition finance” versus “green” or “sustainable finance” and “ESG”?

How to identify the key investment opportunities across sectors and technologies?

How to track where finance is flowing, and what the policy, political and environmental drivers are that attract capital?

How to balance the move away from carbon-intensive activities, with the wider social impacts of the transition?

15 Organisation for Economic Co-operation and Development (OECD)ECD, Key_Messages_EMnet_Green_Economy_EnergyTransitionEmergingMarkets.pdf (oecd.org)