Just Transition in Financial Industry
The United Nations Environment Programme Finance Initiative (UNEP FI) releases recommendations for just transition in financial industry, aiming to incorporate environmental and social factors into the core business of the financial industry.
The proposal for a just transition of the financial industry was put forward by the UNEP FI to the G20 Sustainable Finance Working Group to improve the G20 Transition Finance Framework.
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Introduction to Just Transition
Low carbon transition is an important way to address climate change issues, as it can avoid the climate problems faced by the economy and society, and provide new technological innovations. However, without detailed planning, transition may lead to negative impacts on some groups, making it difficult for them to obtain the economic and social benefits of the transition.
The International Labor Organization believes that just transition refers to promoting an environmentally sustainable economy and creating decent employment opportunities in an inclusive manner. It involves maximizing the social and economic opportunities of climate and environmental actions, creating a favorable environment for sustainable businesses, and treating the challenges with caution. Just transition requires sharing the benefits of the transitional economy with the affected groups during the transition process.
The financial industry has become an important medium in the transition path, providing funds for enterprise transition through financial activities such as investment, financing, and insurance, promoting sustainable development and climate resilience construction. Financial institutions are both creators of transition plans and users of customer transition plans, therefore they play an important role in just transition.
Incorporate Just Transition into Transition Plan
The transition plan aims to define and explain the net zero goals of the enterprise in the short, medium, and long term, as well as the plans required to achieve these goals. Some jurisdictions have listed transition plans as mandatory disclosure matters, such as the EU Corporate Sustainability Due Diligence Directive, which requires all companies that meet regulatory requirements to develop climate transition plans to ensure that their business activities are consistent with sustainable economic transition.
The UN High Level Expert Group on Net Zero Emissions Commitments of Non-State Entities recommends that businesses explain in their transition plans how they can contribute to a just transition and achieve net zero emissions and a climate adaptive economy in a fair manner. Although some transition plans have recognized the importance of just transition in achieving climate goals, progress in application is often slow.
Recommendations for Just Transition in Financial Industry
The UNEP FI believes that the financial industry can incorporate just transition into its business strategies and actual operations, reduce adverse impacts on the environment and society, and meet the needs of just transition. Applying just transition can also manage customers’ sustainable risks and respond to the demands of stakeholders such as regulatory agencies and shareholders.
Pillar 1 and pillar 5 of the G20 Transition Finance Framework respectively involve methods for identifying transition activities and investments, as well as assessing and mitigating the negative social and economic impacts of transition activities and investments. The financial industry can take the following actions in these two areas:
- For pillar 1, the financial industry can strive for a just transition and incorporate it as part of its strategy. The financial industry also needs to understand the impact of just transition on its development and assess its risks and opportunities. They can interact with customers, suppliers, and partners to promote meaningful cooperation and develop strategies for implementing just transition.
- For pillar 5, the financial industry can understand the need for just transition and develop related products that can support the priority and help businesses manage transition risks. They should also pay attention to the scope of transitional financing, cover vulnerable groups as much as possible, and design customized green finance and risk management solutions for them.
Reference:
G20 Recommendations: Advancing a Nature-Positive Economy and Just Transition
