Finance & Investment
First Roadmap for Financiers Implementing a ‘Just Transition’ Launched at COP28

Sunday at COP28 in Dubai, UNEP FI and the International Labor Organisation (ILO) released Just Transition Finance: Pathways for Banking and Insurance — the first roadmap for the financial sector to promote a just transition to low-carbon, resource-efficient and resilient economies.

The new guidance will support UNEP FI members and the wider financial sector in embedding just-transition practices in their operations to ensure a climate transition that leaves no one behind. As the idea of integrating just-transition principles into the financial sector is a relatively new development, the report offers actionable steps, examples of emerging practices, and suggests additional tools and resources to support this integration.

Climate change continues to threaten our ecosystems and the wellbeing of all living beings on Earth. As the latest research on the subject — also unveiled on Sunday — warns, the ship has mostly sailed on our chances of limiting global warming to 1.5°C, as set in the Paris Agreement; our efforts going forward will be focused on minimizing the extent to which we overshoot this goal — which will still require profound shifts across the global economy. And these shifts are doomed to fail if not done through systems that ensure just economic and social benefits and protect vulnerable populations. A just transition involves maximizing the social and economic opportunities of climate and environmental action — including an enabling environment for sustainable enterprises — while minimizing and carefully managing challenges.

A just transition to low-carbon and sustainable economies holds great potential for job creation, technological innovation and the development of resilient societies. While ensuring our best chances of long-term survival in the face of climate change, a holistic transition to a low-carbon economy also provides an opportunity to promote social justice and address poverty, inequality and gender gaps. This shift towards clean energy and the related transformation of economic activities is expected to lead to employment opportunities — with ILO research indicating that a just-transition scenario could create 25 million “green” jobs by 2030. Moreover, the climate transition has the capacity to enhance sustainable enterprise creation and skill development, thereby leading to more resilient economic growth and higher standards of living.

Through the redirection of financial flows to clean technologies, adaptation solutions and innovative businesses, the financial sector has a key role to play to ensure that the transition to low-carbon economies is an equitable one that leaves no one behind. Insurers, in particular, could be critical actors in building resilient societies by adopting risk-management strategies that address social and environmental challenges and ensuring adequate coverage for all communities; but as recent research found, this would first require the insurance industry’s own profound shift — away from continuing to underwrite activities that fuel climate change and nature loss.

Just Transition Finance outlines the social and economic impacts of the low-carbon transition and supports banks and insurance companies in taking part in playing their part in achieving it. Complementing the ILO Just Transition Finance Tool for Banking and Investing activities, it provides financial institutions with practical advice and examples of emerging practices on how to embed just-transition considerations in their products and business operations in alignment with the goals of the Paris Agreement. The recommendations will help institutions ensure compliance with social-performance standards aligned with Human Rights frameworks, while enabling substantial social benefits. Amongst them are:

• Securing a commitment to just transition from senior management and governance entities, and ensuring this commitment is embedded into existing organizational strategies.

• Mapping and assessing the social risks and opportunities facing financial institutions as a result of the climate transition in order to understand the context-specific nature of how just-transition principles should be applied

• Putting people at the heart of institutional strategy and decision-making through social dialogue and stakeholder engagement.

• Developing an implementation strategy to incorporate just-transition principles into institutional policies, processes and capacity building

• Developing products and solutions to provide financing and insurance coverage for just-transition projects and activities.

• Improving financial inclusion and closing the protection gap to improve client resilience to climate transition.

• Embedding social and environmental considerations in due diligence, legal agreements and monitoring processes.

• Fostering behavioral change through informing and engaging clients on committing to a just transition.

• Engaging in strategic partnerships to catalyze action for a just transition through industry initiatives and other stakeholders.

Focused primarily on social impacts, risks and opportunities arising from climate change, the recommendations from the report can also be applied to address other environmental challenges, such as biodiversity loss and pollution. The resource also recognizes that specific social and economic impacts of the transition are very context-dependent and should be carefully assessed.

The UNPE FI-ILO report was developed with support from more than 40 banks and insurance companies, international financial institutions, academic and civil society organisations. Next year, UNEP FI will develop further resources, guidance and support for UNEP FI members to develop and implement their just-transition strategies.