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Background & The Business Case
The pace and speed of the energy transition will be unprecedented, with significant impacts on workers and the communities they live and work in. As such, companies should work to ensure that the impacts of their own decarbonization strategies protect the rights of workers and communities, as they should be given a fair opportunity to transition into new, sustainable livelihoods.
Investors are looking for companies to adopt robust Just Transition policies and plans that account for the impact of their decarbonization strategies on workers, communities, and other key stakeholders. The scope and scale of these impacts will vary between sectors, but the pursuit of climate action may involve the retirement of certain assets or the rapid integration of new technology. This will require board oversight to successfully balance the needs of a credible climate transition plan while also ensuring a Just Transition. Strong board oversight is especially important as these plans present long-term risks and opportunities that may extend beyond current management tenure. As technology and changes in regulations incentivize more ambitious greenhouse gas targets and decarbonization plans, Just Transition plans should be updated to reflect the necessary pace and scale of action. Finally, to be credible to investors, a Just Transition plan will require meaningful stakeholder engagement and co-development, ensuring those that may be most affected by the burdens of climate change and decarbonization are consulted in the design of proposed solutions.
It is critically important that companies develop a process to include stakeholders in transition planning activities. Successful businesses build effective long-term relationships with key stakeholders, including workers, customers, contractors, suppliers, regulators, and local community leaders. Companies depend on these groups to run their businesses smoothly and create sustainable returns for shareholders. Conversely, failure to build strong relationships with key stakeholders can create a myriad of operational, legal, regulatory, and reputational risks. As companies transform their operations to thrive in a low-carbon economy, they have a vested interest in being transparent about their objectives, bringing key stakeholders to the table to help develop transition plans, and leveraging those conversations and relationships to gain a competitive edge.”
The bottom line: Planning for a Just Transition is not a trade off with the necessary pace of decarbonization. Investors want to see companies move at the speed required to meet the global goals of the Paris Agreement while also accounting for and mitigating the social impact of their decarbonization strategies.
Historical Proxy Season Background
As an emerging topic, engagement on the theme of Just Transition is primarily driven through dialogue. However, the first shareholder resolution seeking Just Transition planning and reporting was filed in 2022 by the International Brotherhood of Teamsters General Fund (Result: 16.5% FOR). This was an impressive outcome for a new resolution type. As investor expectations on this topic continue to develop, and nascent corporate disclosure begins to define best practice, we expect to see increased engagement and support across the investment community.
2023 Preview
At least three resolutions have been filed on the topic of Just Transition at Climate Action 100+ focus companies this year. Relevant information on flagged votes and other notable proxy season activity is updated weekly on our Proxy Season Webpage.
Further resources
- Organizations are analyzing and assessing Just Transition disclosure through tools such as the World Benchmarking Alliance Just Transition Benchmark and the Climate Action 100+ Net Zero Benchmark
- Please note: the Climate Action 100+ Benchmark framework and Just Transition indicator have been updated as of March 2023.
- PRI’s Statement of Investor Commitment to Support a Just Transition on Climate Change, supported by 161 investors representing US $10.2 trillion in assets, lays out a high-level business case for investor action in support of a Just Transition.
- Many corporate Just Transition principles are informed by the International Labor Organization (ILO) Guidelines for a Just Transition towards environmentally sustainable economies and societies for all.