While popular in climate policy circles, the notion of a just transition has yet to pervade the wider consciousness at a global level, even as debate surrounding climate change and net zero policies garner mounting attention.
The concept of a just transition:
- embodies the tension between the need to move to a low carbon economy as quickly as possible and the imperative to do so in a way that is equitable and fair; and
- reflects the difference in perspectives and priorities we continue to see play out on the international stage.
Delegates at the COP28 climate summit will dedicate time to making the concept a practical reality, seeking to progress an international consensus on how to achieve a just transition.
Businesses must also tackle this topic, especially given increasing mandatory regulation requiring companies to consider and disclose their corporate sustainability strategies.
In this article we outline what a just transition means, assess the likely outcomes at COP28; and set out some key issues for businesses as they consider what a just transition means for their activities.
Ensuring the move to an environmentally sustainable global economy is fair and socially just is a concept originally defined by the International Labour Organisation (ILO) and has since been developed primarily on the international government stage. Disagreement, however, persists among nations – in particular, between the Global North and Global South – as to what a just transition should look like.
With one day dedicated in part to the just transition at the Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) in Dubai (COP28) we can expect further discussion on this topic.
However, in the absence of consensus on how to ensure a just transition, we may see the impetus fall on the private sector to tackle this topic, as has been the case for setting net zero emissions targets. This is particularly likely given that businesses must grapple with this concept as part of their corporate sustainability strategies, due diligence and disclosures, and as they consider the trade-offs between achieving different economic and sustainability aims.
As this concept spreads beyond international diplomacy, companies will face mounting pressure to consider how to address economic goals on one hand and environmental, social and governance (ESG) aims on the other, while bringing along each of their key stakeholders as they move to a sustainable future. Such daunting contradictions explain why progress in the area has been slow to date.
Just transition – What does it mean?
The conversation around ensuring a just transition first emerged in the 1980s, when it was associated with a US trade union movement aimed at protecting workers whose jobs were affected by new water and air pollution regulation.
The concept has since evolved and expanded into the conversation around international climate goals and the move towards a sustainable and low-carbon future with a focus on addressing the risk of workers and communities that are reliant on carbon-heavy industries being left behind.
The ILO has been credited with first formally defining the concept in 2015 as "greening the economy in a way that is as fair and inclusive as possible… creating decent work opportunities and leaving no one behind”. This definition was accompanied by guidelines and seven principles which set out that “a just transition for all … needs to be well managed and contribute to the goals of decent work for all, social inclusion and the eradication of poverty”.
Although the ILO definition is still frequently referenced, there is no clear international consensus on how a just transition should be ensured in practice.
The concept is complex and it has become increasingly clear that stakeholders within different industries and geographies have different expectations as to how it should be tackled. The concept itself embodies the tension between the need to move to a low carbon world economy quickly and the imperative to do so fairly. This includes consideration of how to achieve equitable economic development in parallel with this transition, where some states or regions have historically benefitted from carbon-intensive activities.
One thread that runs throughout most stakeholders' notion of a just transition is the need to meaningfully engage with impacted workers, communities, and businesses through continued dialogue. This aims to ensure all stakeholders have bought in to and are supported throughout the shift to an environmentally sustainable economy. As set out by both the Organisation for Economic Co-operation and Development (OECD), and the European Bank for Reconstruction and Development (EBRD), while moving to a sustainable economy is expected to generate net gains in employment, a just transition is intended to ensure these benefits are distributed fairly. Doing so is intended not only to be just but also foster wider and stronger support for climate action.
What to expect at COP28
COP28 is not the first time the just transition has been addressed within the summit. As early as COP17 in South Africa in 2011, just transition was defined as one of eight key areas of work in the adopted programme on the impact of the implementation of response measures. This was followed by an in-forum workshop held in Bonn, Germany in 2013, where parties, international organisations and experts held that developing countries faced challenges in implementing a just transition due to relatively weaker institutions and large youth populations.
In negotiations leading up to COP21 in Paris, various unions successfully lobbied for the concept to be reflected in the Paris Agreement. Parties also agreed to improve the existing forum on the impact of the implementation of response measures by adopting a work programme centred around two areas, one of which was the "just transition of the workforce", and the creation of "decent work" and "quality jobs”.
Since the adoption of the Paris Agreement, international stakeholders have continued to discuss and negotiate on the topic at COPs, aiming to find a common approach. This included the signing of the Just Transition Declaration by various industrialised countries at COP26, which committed them to adopt strategies ensuring that workers, businesses and communities are supported as countries move to greener economies. However, at last year's COP27 in Sharm El-Sheikh, a just transition remained largely on the side-lines.
Over the course of these COPs, less developed countries in the Global South have argued that discussions have largely focused on national or regional climate change mitigation efforts and been influenced by political discourse in the Global North. They argued that, as such, the existing conversation often failed to consider their needs and priorities, such as universal access to energy. Some representatives have also stated that a just transition must be interpreted more broadly so the Global South can be supported financially throughout the shift, via technology transfer, capacity building and other measures.
At the upcoming COP28, just transition is back on the agenda. The Thematic Program states that day six of the conference will focus on just transition alongside energy and industry and indigenous peoples. It is planned that this day will "focus on levers and pathways for rapid decarbonization, job growth, and economic opportunity and just transition, […] taking a holistic view of the just transition and the socio-economic considerations across all sectors".
What does just transition mean for business?
Although the concept has largely been discussed at governmental level, businesses are increasingly grappling with a just transition.
Businesses will need to consider the implications for them of any international policy agreements adopted at government level at COP28 or elsewhere. The scope of influence of each business will depend on its circumstances and individual businesses may be unable to address all aspects of a just transition that relate to economic and social development between global regions.
However, businesses are already confronted with this topic due to increasing obligations regarding due diligence and disclosure of ESG factors. Indeed, businesses are already encouraged - and in some cases required - to weigh up the impacts of their strategic decisions on the climate and their stakeholders (including employees) and to consider trade-offs between them. For example, the first of the ISSB's standards on General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) requires a company to:
- disclose information about its sustainability governance bodies and how they take account of sustainability-related risks and opportunities when overseeing the company's strategy, including whether it has considered trade-offs associated with those risks and opportunities; and
- disclose information enabling users of financial reports to understand the effects of sustainability-related risks and opportunities on its strategy and decision-making, including trade-offs between sustainability-related risks and opportunities that the entity considered (for example, in making a decision on the location of new operations, an entity might consider the environmental impacts of those operations and the employment opportunities they would create in a community).
Similar requirements to consider strategic decisions in light of ESG factors are also embedded in the European Sustainable Finance Disclosure Regulation, Task Force on Climate-related Financial Disclosure requirements and other mandatory and voluntary regulations and frameworks.
As such, businesses must consider any decisions made with a view to reaching climate goals holistically, to support and persuade all stakeholders. As businesses consider what constitutes a just transition for their business, how to ensure compliance with due diligence and disclosure regimes, and how to effectively engage with stakeholders, it is clear a one-size-fits-all approach will not suffice.
Companies will therefore benefit from cross-practice, holistic strategic and legal advice to help bridge the gaps their business may face in achieving economic success, reaching climate goals and considering other stakeholders involved in this process.