Rathbone Greenbank Investor Day 2021
Financing a just transition
With pandemic-related restrictions still in place, Rathbone Greenbank Investments (Greenbank) built on the success of last year’s online Investor Day by hosting its 24th annual event remotely.
Building a sustainable net zero economy requires significant technological, social, and economic transformations. Critical to these systemic challenges is the protection of people and communities whose livelihoods depend on the fossil fuel economy. For them, the journey to net zero must bring about a just transition, creating high quality employment opportunities and resilient communities.
For Nick Robins of the LSE’s Grantham Research Institute for Climate Change and the Environment, justice and fairness is a critical enabling condition for accelerating the shift to net zero. Policymakers, businesses, and financiers have implemented some first-of-a-kind supporting initiatives which now need to scale up. The upcoming COP26 climate summit provides an ideal opportunity for investors to engage with companies and policymakers, reallocate capital, and build new partnerships to support the inclusion of just transition principles in net zero strategies.
Investors must also avoid siloed thinking across the environmental, social, and governance dimensions of the net zero transition. The Paris Agreement highlights the importance of creating quality jobs that track nationally defined development priorities. The International Labour Organization (ILO) also recognises that an environmentally sustainable economy must contribute to increased social inclusion and the eradication of poverty. Covid-19 has also highlighted the importance of maximising the social and employment benefits of the transition, avoiding stranded assets, and mobilising investment for actions that truly reflect local needs in high-carbon regions.
Kingsmill Bond, an energy strategist for Carbon Tracker, believes that the energy transition is the most important driver of financial markets and geopolitics in the modern era. It’s also a fortunate circumstance where doing the right thing is also profitable.
The revolution in renewable energy technologies over the last decade has seen their costs fall by up to 90% with the trend set to continue. Economic advantage has undeniably shifted to renewables and global net zero commitments have ‘supercharged’ the shift in energy technologies. Once peak demand for fossil fuels passes, financial markets will react leading to a rapid decline in the fossil fuel sector, resulting in a much higher likelihood of stranded assets in high carbon industries.
The world’s richest 5% consume a third of the planet’s fossil fuels. The poor pay a disproportionate price in excess deaths from pollution, especially in emerging market regions. Emerging markets are particularly rich in renewable energy sources which could end fossil fuel dependencies and global energy poverty, but a lack of policy in developing economies is restricting the allocation of investment capital.
Sharan Burrow, general secretary of the International Trade Union Confederation, identifies investment and investor action as key drivers for achieving global climate and development goals. These goals reflect both an ethical and survival imperative and can only be achieved if we invest in people and communities.
Workers are vulnerable to ‘fault lines’ in global economies. The current health crisis and the emergence of vaccine nationalism demonstrates how narrow interests limit the capacity for people to share equally in economic prosperity. Exposure to these fault lines can be countered by a more inclusive and just model of economic development. Investors must hold companies accountable and ask that their climate action plans include an integrated transition plan for worker security.
Regulation and multilateral reform is also vital. Human and labour rights are central to the establishment of a more inclusive social contract with improved environmental standards, wealth equity, and universal social protection. Regardless of the industry, there is no community resilience without investment in social care.
Rachel McEwen, chief sustainability officer at SSE explained how workers and communities are at the heart of the energy company’s net zero strategy. In 2020, SSE became the first company to publish a community-focused just transition plan. Rachel also acts as an adviser on social risks and opportunities to the Scottish government’s Just Transition Commission.
Justice in an energy transition is the sharing of benefits and opportunities without placing undue cost burdens on those least able to pay or whose livelihoods are at risk from economic change. SSE’s transition strategy starts with their net zero infrastructure investments (£7.5 billion over five years), creating significant opportunities for their ‘inward’ transition. It looks to attract new and socially diverse talent, establish principles for consumer fairness, and set social safeguards and development standards for new buildings and assets. The company’s ‘outward’ transition focuses on the need to repurpose high-carbon assets and prioritise retraining. It also recognises that supporting high-carbon communities means respecting the cultural impacts of long attachments to dominant industries.
Greenbank’s Nicola Day concluded the presentations by observing that historical economic transitions have rarely been equitable. People are left behind in the pursuit of progress and the health of environmental and social systems is largely ignored. This is a trend that cannot continue.
The existence today of climate and sustainable development goals gives us greater scope to embed our values into our investment thinking and processes. Greenbank itself assesses companies’ commitments to these values against eight core sustainable development themes. An investment roadmap to achieving these goals by 2050 prioritises smart, socially inclusive transition solutions where impacts can be measured and a core commitment to social and environmental care is clear. Greenbank considers the just transition to be a smart pathway to scaling up global ambition, reducing systemic risk, enhancing human capital, and delivering a more equitable future.