We should worry as much about 'stranded workers' as stranded assets
In former mining towns across northern England and Wales, the scars from the collapse of the U.K. mining industry in the 1980s are still visible. High levels of unemployment still plague many areas, while old infrastructure lies abandoned and communities lie trapped in cycles of poverty. Such wounds take decades to disappear — you only have to look at the still struggling Redruth and Camborne, two mining towns in Cornwall which saw their industries fall into steady decline from 1850 onwards and whose economies still struggle today with low wages and underemployment.
Could the much hoped-for low carbon transition risk the same results? Could it too leave vulnerable communities badly damaged as jobs, industry and prosperity gravitates to cleaner, greener neighbors?
Academics at the London School of Economies and the Environment, and the Initiative for Responsible Investment based at Harvard, have this year launched a new project to try to prevent this outcome from coming to pass, considering what role investors can play in ensuring a "just transition" to a low-carbon economy.
"A shift to a zero carbon economy cannot really be considered just an environmental issue," Nick Robins, professor in practice of sustainable finance at LSE and one of the lead researchers on the project, told BusinessGreen. "It clearly has quite profound socioeconomic implications — particularly as in many cases the transition is going faster than we thought.
"In transitions we have done before, we have had problems of regions being left behind, left behind communities, and as we make this transition to a zero carbon economy we don't want that to happen again. We want to do this in a smart way."
The "Investing in a Just Transition" project aims to get investors to start embedding a "just transition" approach into their investing from the outset, to avoid not only the risk of "stranded assets" but also of "stranded workers" and "stranded communities."
Investor interest in the low-carbon transition is growing rapidly. This week MPs called on the government to make climate risk disclosures mandatory for large companies, while growing numbers of institutional investors are rewriting their investment rules to take account of climate risk.
And although the idea of a "Just Transition" has traditionally been more an area of concern for governments and trade unions, Robins insisted investors have a key role to play.
"I don't think we are saying investors are necessarily the most important stakeholder. This is probably an issue largely for governments… but having said that I think investors can play a useful role alongside it," he explained.
"Investors, as we know, have strong influence, stewardship, relationships with the companies they own. So I think there [are] strong incentives for companies to ensure there are high environmental and social standards. So when investors are asking companies about their TCFD scenarios, actually I think it probably would increasingly make sense for investors to also understand what that means for the skills base of those companies, what it means for how they are managing restructuring, what it means for communities, and so on."
Investors are also critical to funding transition projects, such as regeneration programs, in vulnerable regions, he added. "One of the ways of delivering a just transition is obviously not just thinking about the factories or companies, but actually what do you do about the regeneration of whole regions? And for that, you need investors."
The project is running in two parallel initiatives. The first, launched earlier this year, is a global research scheme to look into how investors around the world can start to engage with, and respond to, the discussion around just transitions to low-carbon economies.
On Friday the project team released a paper outlining their initial thoughts in this strand, identifying six reasons why investors should consider taking an active role in the just transition. These include linking siloed Environmental, Social and Governance (ESG) factors to create a more holistic investment approach, aligning investment practice with the Sustainable Development Goals, identifying new investment opportunities and improving their understanding of systemic climate risks.
By the time of the U.N. climate negotiations in Katowice, Poland, in December, the team will have a final discussion paper ready offering investors formal guidance and a case for action on this issue.
Meanwhile a parallel project, launched this month, will hone in on the U.K., considering how the low-carbon transition will affect particular regions in the U.K., and what can be done to smooth the economic shift.
Yorkshire, which has the most industrial carbon emissions in the U.K. and is likely to see a significant change in its economy over the next decade, will become the central case study in the year-long initiative, said Robins.
"Yorkshire turns out to be a very interesting place in this context," Robin said. "It's a carbon-intensive industrial region in the U.K., Drax is there, you've got a lot of foundation industries, but you've also got Hull green port. So it's actually a very interesting location to look at."
Working with the University of Leeds, Robins plans to map the vulnerabilities of the Yorkshire economy to the low-carbon transition, considering factors such as the prevalence of high carbon industries, opportunities for green growth, the county's skills base, rates of fuel poverty, and carbon intensity of local supply chains.
His team will then consider the role investors can play in easing this transition, from offering community energy financing to developing local capacity to finance a pipeline of green projects, or pushing firms to upskill workers in preparation for the growth of low-carbon industries. Such questions are already a hot topic in Yorkshire, Robins noted, pointing out that in April the local Trade Union Congress established a low-carbon taskforce, warning the county is "a region in transition but without a plan".
Robins hopes the Yorkshire project may deliver learnings applicable to the rest of the U.K. and beyond — particularly by using the heat mapping exercise to identify key vulnerabilities in communities for governments, businesses and investors to hone in on.
But for investors only just getting to grips with the challenge of climate risk in the first place, is there a risk we are piling too much onto their plate by asking them to engage on the idea of a just transition as well? Not so, said Robins, who insists a just transition strategy is just a "natural extension" of investors' existing climate risk policies.
Besides, the risks of not acting on this issue are even greater, he warned. "If we don't show at a systemic level that actually the transition brings people with it, brings economies with it, and actually leaves people better off, then you are going to get resistance to that."
"If we don't deliver the transition in a just way, then you don't get the transition, and you have the risk of catastrophic failure of the financial system."
But manage it right, he said, and we could hope to speed the low-carbon transition by driving ambition and speeding action across government, business and investment communities. As we head into a revolution many expect will be akin to the scale of the Industrial Revolution, it's time to ensure we don't repeat the mistakes of the past.