Just Transition Criteria
How to align investmentswith a just transition

2 | Just Transition Criteria: How to align investments with a just transition

The current momentum moving
capital towards impact needs tobe accelerated. A concerted andurgent effort by all actors is required
to move funding – using relevant
instruments and vehicles – into the
SDGs and transition to a Net Zeroworld in which no one is left behind.
G7 Impact Taskforce
Mobilising Institutional Capital Towards
the SDGs and a Just Transition

www.impactinvest.org.uk | 3

Contents
About this document

4

Acknowledgments

5

Foreword

6

1. Introduction

8

2. Three elements for a just transition

12

3. The Just Transition Criteria

14

4. Towards a just transition label?

28

Appendix
I. List of example disclosures and indicators forfulfilment of Criterion 2: preventing potential
negative impacts and harmful consequencesof investments

31

II. List of example KPIs for fulfilment of Criterion 3:
positive contribution towards just transition
objectives

35

III. Asset class specific guidance

39

IV. Mapping of Just Transition Criteria to major
sustainability regimes (UK SDR and EU SFDR)

44

4 | Just Transition Criteria: How to align investments with a just transition

About this document
This document has been produced by the Impact Investing Institute inpartnership with investors and other stakeholders committed to deliveringa just transition.

T

he document contains a setof Just Transition Criteria thatcan be used by investors toalign products (such as investment
funds) and solutions to support theachievement of a just transition to
net zero.
Rather than putting forward a newframework, the Just Transition
Criteria build upon the existing
frameworks, standards, labels,

and initiatives that financial actors
are already using. Nevertheless,the Just Transition Criteria aredesigned to fill a gap in the market
for improving and demonstratingalignment with the three criticalelements of a just transition,
as identified by the G7-backed
Impact Taskforce: climate andenvironmental action, socioeconomic distribution and equity,and community voice.

The development of the Just
Transition Criteria is an iterative
process. We intend to revise
them regularly, in line with theevolution of market practice and theregulatory landscape.

To receive updates on futureversions of the Just Transition
Criteria, please sign up here.

www.impactinvest.org.uk | 5

Acknowledgments
We are grateful for the commitment of the founding participants of ourJust Transition Finance Challenge, listed below, who spearheaded thedevelopment of the Just Transition Criteria.
We would also like to thank the organisations and individuals representing
financial institutions, foundations, academia, professional services, civilsociety organisations and NGOs who contributed to this work, including by
providing feedback on an earlier version of this document during a period of
public consultation that ran from January to March 2023.
Just Transition Finance Challenge founding participants:

Knowledge partner:

With the support of:6 | Just Transition Criteria: How to align investments with a just transition

Foreword
We believe it is imperative that financial markets create positive outcomes forpeople and the planet.
The world is facing two greatchallenges – the transition to a low
carbon economy and rising social
inequality. Neither can be solved
without addressing the other.
Capital markets have a major roleto play in being part of the answer,
but many investors that can deploy
capital at scale are not clear on thesteps they need to take to tackle
both of these issues.
At the Impact Investing Institute, we
connect investors with opportunities
that can address social andenvironmental challenges while
securing a financial return. The Just
Transition Criteria are a practical
tool that has the power to unlock
trillions of pounds of investment fora transition to a net zero world thatprioritises the needs of the planet
and the people living on it.

The Criteria will make it easier forfund managers to design financial
products that can help deliver on
the three critical elements of a justtransition, as defined by the G7backed Impact Taskforce:

NGOs and social investors to reflect
their views on how the Criteria canbe most impactful. We are grateful tothese organisations who helped tomake the Criteria as meaningful andpractical as possible.

• Advancing climate andenvironmental action – including
greenhouse gas emission
mitigation, reduction and removal

Going forward, we will continue
to work on practical ways ofconnecting capital to impact.
Research by the UK Financial
Conduct Authority shows that81% of adults would like theirinvestments to do good as well as
provide a financial return. While itis positive to see that demand istranslating into investor action, there
is no time to lose in securing thejust transition. It is our great hopethat the Criteria will give investors
a practical tool that accelerates the
deployment of capital for a transition
to a low carbon world where people
and communities prosper.

• Improving socio-economic
distribution and equity –through, for example, inclusive
opportunities for decent jobs
• Increasing community
voice – through, for example,
engagement and dialogue withaffected communities that areoften excluded and marginalised
Globally, £2.2 trillion are invested inclimate-focused funds. Within thenext five years, we would like to see
over half of these investments adopt
a just transition approach, combining
climate action with creating andsecuring opportunities for people
and communities to thrive in atransformed global economy.
The Criteria have been co-created
and tested in collaboration with the
21 asset owners and asset managers
participating in our Just Transition
Finance Challenge, representing
over £ 4 trillion of assets and assets
under management. We are also
grateful to our knowledge partner,
the London School of Economics’
Grantham Research Institute, and to
Deloitte LLP and Oliver Wyman for
their support.
As part of a public consultation, theInstitute worked with a wide range ofKieron Boyle
Chief Executive

www.impactinvest.org.uk | 7

The objective of the Just
Transition Criteria is to catalysemarket momentum andcompetition to direct more
capital towards a just transition.

8 | Just Transition Criteria: How to align investments with a just transition

1. Introduction
The climate and nature crises are the defining challenges of our time.
Their effects are visible and the impacts on people ever more prevalent.
The call to action is clear: we must mobilise more capital rapidly and at
scale to finance a just transition.
What to expect from this document
This document contains the Just
Transition Criteria (“the Criteria”)
for aligning investment products
and solutions with the elementsof a just transition as defined by
the G7-backed Impact Taskforce(summarised in Section 2). Our aim
is for financial actors, primarily public
and private asset managers andowners, to use the Criteria to create
new or align existing products,
solutions and investment mandates.
The goal is to direct more capital
towards financing a transition to a
net zero in a manner that is inclusive
and equitable.
The Criteria themselves (Section3) form the core of this document.
Whilst the Criteria are intended to
be used independently by financial
actors, Section 4 outlines a proposal

for a potential just transition label
recognising compliant products
and solutions. Appendices I and II
should be read in parallel to Section
3 and provide an indicative list of
disclosures and indicators, drawn
from existing frameworks, that may
be used in implementing the Criteria.
Appendix III provides guidanceon considerations in applying theCriteria to major asset classes.
Appendix IV provides a mapping of
Just Transition Criteria against two
major sustainable finance regimes:
the UK’s proposed Sustainable
Disclosure Requirements (SDR) andthe European Union’s Sustainable
Finance Disclosure Regulation(SFDR).
The need for a just transition
The climate action agenda has tended
to focus on a climate transition to net

A singular focus on
reducing carbon emissions
is not sufficient - a shift
in perspective to include
socio-economic impacts is
integral to the transition’s
success.
zero, and the changes needed to moveto a low-carbon and resource-efficient
global economy. Whilst necessary,
this narrow approach has led to
growing concerns about the potential
negative effects of climate actions
on society, the global economy, andthe natural world. It also neglects
the huge opportunities for people
and communities that the transition
presents.
The just transition concept stems
from the understanding that asingular focus on reducing carbon
emissions is not sufficient and thata shift in perspective to include
socio-economic impacts is integral
to the transition’s eventual success.
A holistic approach, paying attention
to our planet, its people, and theircommunities, is needed to address
climate change and its effects onsociety in a fair and inclusive way,
and to secure necessary public
support and participation.
Governments, investors, businesses,
and communities across the globe
have recognised the need for,and benefits of, a just transition

www.impactinvest.org.uk | 9

approach. The 2015 Paris Agreement
highlighted the importance of ajust transition, acknowledging that
decarbonising objectives need
to be combined with attention toaffected workers in a shift to a
resilient economy. Most recently, theSharm el-Sheikh Implementation
Plan, agreed at COP27 in November
2022, put the imperative of a justtransition at the core of the global
climate agenda by recognising that“effective climate action should be
implemented in a manner that isjust and inclusive while minimizing
negative social or economic impacts
that may arise from climate action”.
The Impact Taskforce further
recognised that the consensus
on the need for a just transition
creates an opening to increase
coordination across different actors
who are increasingly aware of
their responsibility to contributeto this transition. Given the scaleof the interventions and financing
required to achieve a whole-of-theeconomy, global just transition, such
coordination is vital. The common
recognition of the need for a justtransition creates opportunities toreduce – and work across – silos,
be they sectoral (for example,
between governments, public andprivate investors, and businesses),geographic (between and across the
Global North and the Global South)
and thematic (for example, between
investors focusing on social impact
and the much larger pool of investors
seeking environmental impact).
Ambition and impact
The Criteria were developed in
response to the need for andopportunities related to financing thejust transition, as outlined above, witha focus on engaging financial market
actors including asset managers,
asset owners, and intermediaries. Our
focus on these actors stems from thefact that, whilst interest in the justtransition has risen, the applicationof a just transition approach remains
limited in financial markets.

As identified by the global
contributors to the Impact
Taskforce, one key reason for
limited action is the lack of acommon understanding of what
“good” looks like when it comes toadopting a just transition lens ininvestment activities. The Impact
Taskforce laid the groundwork
for a common understanding, byidentifying the three elements of ajust transition (advancing climate
and environmental action, improvingsocio-economic development andequity, and increasing community
voice – see Section 2). The Criteriabuild on the work of the Impact
Taskforce and consolidate innovative
good practice in just transition
financing and thinking.
The Criteria reflect the level ofambition and urgency that isrequired to achieve a global justtransition to net zero. The ambitionof the Criteria is high: to catalyse
the mobilisation of capital towards
a global just transition at scale.
Yet we have sought to ensure theCriteria are practically applicable
to reflect the urgency for financial

Governments, investors,
businesses, andcommunities across theglobe have recognised theneed for, and benefits of, ajust transition approach.
market participants to act now.
They have been designed to enable
the adoption of a just transition
approach by investment strategies
currently on the market and indevelopment, thereby increasing thequality and quantity of products andsolutions that materially contributeto advancing a just transition.
The Criteria are intended to be a free,public good providing a common setof principles for market actors andbroader stakeholders to align theirinvestments with just transition
objectives. The Criteria also provide
a frame of reference that can beused by different types of actors
to demonstrate or assess claims ofalignment with the just transition.
The Impact Investing Institute does

10 | Just Transition Criteria: How to align investments with a just transition

not hold any regulatory power and,as such, the adoption, use of, andreporting against the Criteria isvoluntary.
As detailed in Section 4, we are
exploring the launch of a justtransition label. The label would
recognise best practice in advancing
a just transition amongst financial
products and solutions that apply
the Criteria. We welcome feedback
and expressions of interest on the
proposal for a just transition label.
Approach to Criteria development
The Criteria, outlined in Section
3, have been developed throughengagement with multiple financial
institutions, from impact investors
and more mainstream asset
managers to pension funds anddevelopment finance institutions(DFIs). They have benefitted from
input by civil society organisations,foundations, NGOs, academia,
and other experts, includingorganisations that work with thecommunities most affected by thetransition to net zero.
The Criteria should not be
considered new contenders in the
expansive landscape of standards
and frameworks. They are rooted
in the universal principles foundin initiatives, frameworks, andstandards such as the UN Global
Compact (UNGC), the UN Principles
for Responsible Investing (UNPRI),
the Global Reporting Initiative (GRI)
and the Sustainable Development
Goals (SDGs), among others.
Further, to encourage their wide
and rapid adoption, the Criteria
have been designed to build on
and be interoperable with existing
frameworks, labels, and standards,
covering leading environmental,social and governance (ESG) and
impact management, monitoring
and reporting (IMMR) processes.
We believe this approach will help
financial institutions leverage their
existing ESG and IMMR processes tofacilitate the launch of vehicles thatdeliver just transition outcomes. The
augmentation of existing processes
through a thematic lens is timely
and forward-looking, in light of global
efforts to standardise sustainability
disclosures and reporting.
We are aware of the rapid regulatory
and industry evolution related toreporting, disclosures, and labelling,and have coordinated with key
initiatives such as the International
Sustainability Standards Board(ISSB), the Taskforce for ClimateRelated Financial Disclosures (TCFD),
the Glasgow Financial Alliance for
Net Zero (GFANZ), and regulators

The Just Transition
Criteria are designed to be
applicable to investments
in all major asset classes

in major jurisdictions. We believe
our proposed approach is flexible
enough to be adaptable to a fastchanging context whilst maintaining
integrity, and we intend to review
and iterate the Criteria regularly toensure this remains the case.
Criteria applicability
The Just Transition Criteria aredesigned to be applicable toinvestments in all major asset
classes. In developing the Criteria,
we have engaged with financial
actors and broader stakeholders
representing expertise across assets
in private and public markets andacross geographies, including indeveloped, emerging and frontiermarkets. We are confident that theCriteria can therefore provide acommon frame of reference that is
sufficiently clear and flexible to beuseable in the range of strategies
that are required to achieve a global,
whole-of-economy just transition.
We have provided further guidanceon considerations in applying theCriteria to major asset classes
in Appendix III of this document.
Going forward, we also intend todevelop more specific asset classapplication guidance and compendia
of examples based on good practicein using the Criteria.
The Criteria have specifically been
designed to be used in the context
of products (pooled investment
vehicles) and solutions (bespoke
investment vehicles created forindividual institutional investors).
For the purpose of this document,
references to “products” denote
both products and solutions.
Whilst we encourage users towww.impactinvest.org.uk | 11

adopt the Criteria across theirinvestment products and portfolio,
we acknowledge both that progress
towards aligning investments witha just transition will be incremental
and that alignment across all
products / a portfolio will not beappropriate in many instances.
Who can use the Criteria?
The Criteria have been created foruse by all financial actors who cantake action to align products andinvestments with the just transition.
We hope this results in participation
by a wide range of institutions
globally, so that investments that
advance a just transition can
attract funding at scale and pace.
We also encourage cooperation
between these different groupsof actors, acknowledging theirrespective roles in a just transition,and between different types ofinvestors working across different
strategies and regions. Actions
taken by each institution will havean impact; together, there can bea significant multiplier effect. The

Just Transition Criteria can beused by:• Asset managers• Asset owners, including pension
funds and charitable endowments• Impact investors• Development finance institutions
and multinational development
banks• Other financial market actors,
including financial advisors andconsultants• Civil society organisations andfoundations
Whilst all the above are encouraged
to use the Criteria, they havebeen developed with an emphasis
on financial actors designinginvestment products, namely asset
managers and advisors (referredto hereafter as asset managers).
Such actors are pivotal in deploying
and stewarding capital into
investments that are aligned witha just transition. Asset managers
are encouraged to use the Criteria

across new or existing investment
products so that they deliver on theelements of a just transition.
Additionally, the Criteria also
provide a framework against whichorganisations not directly designing
products (such as asset owners,
DFIs, and multilateral developmentbanks (MDBs)) can review thejust transition credentials of theirinvestments, either in products
or solutions, or, with required
adjustments, to direct investments.
In particular, asset owners can use
the Criteria as a basis for integrating
environmental and social objectives
into their investment mandates
and encouraging prospective andmandated asset managers todevelop products based on the
Criteria. The Criteria provide a usefulframework against which to assess
multiple products during mandate
searches, and for use in engaging
with asset managers to ensure
their alignment with just transition
objectives.

12 | Just Transition Criteria: How to align investments with a just transition

2. Three elements
for a just transition
This section gives an overview of the three Just Transition Elements identified
by the Impact Taskforce, which form the backbone of the Just Transition Criteria.
Three integrated and universal
elements adaptable to local needs
The Impact Taskforce, backed by the UK
presidency of the G7 in 2021, brought together
170 global stakeholders to mobilise capital towards
a just transition. The Taskforce identified three
Just Transition Elements (“the Elements”) to
provide a common frame of reference for financial
market actors seeking to advance a just transition.
The Elements are applicable across geographiesand can be used to determine local just transition
priorities. The three Elements are interlinked andequally important. They must all be present toensure alignment with a just transition.

1

Moving the world to net zero can be achieved throughtwo complementary investment areas: climate
mitigation or reduction action, and carbon removal.
To reduce net emissions to zero, focus is needed on
both pathways: those that accelerate the reductionof emissions of harmful greenhouse gases (GHGs)
and accelerate the development of new solutions that
capture or remove those gases. Other investment areasthat are critical to the achievement of this Element
include those that protect and restore natural capital,
including biodiversity, and those that support adaptation
and resilience to the effects of climate change.

2
Figure 1: The just transition and its three Elements

Voice
unity
Comm

Socio-economic Distribution and Equity

Clima
te andEnvironmental Action

JUST TRANSITION

Advance climate and environmental action

Improve socio-economic distribution and equity

Positive climate and environmental outcomes must becomplemented with those that support the needs ofpeople. Investments should not entrench or exacerbate
existing burdens for vulnerable or marginalised groups.
Products should be accessible and local communities
should be included in fair opportunities and jobs. They
must also ensure that the goods and services they
produce are affordable, and that costs and profits areevenly distributed, globally and regionally.

3

Increase community voice

The third Element, community voice, should incorporatea spectrum of components that help to improvesocial dialogue and agency, from local engagement toparticipation in decision making. It is paramount that
financial actors ensure stakeholders are heard, and that
their views and needs are responded to in any financing
transaction purporting to contribute to a just transition.
These stakeholders include workers, communities,
and consumers – in particular, those affected bytransition action and those from marginalised andindigenous communities.

www.impactinvest.org.uk | 13

Examples of just transition investment strategies
The Just Transition Elements constitutea common frame of action for all actors
who are instrumental in mobilising
capital for a global just transition. An
overarching principle of the Elements
is that, regardless the primary area ofpriority of the chosen strategy, all three
Elements must be present to qualify as
a just transition investment.
For financial actors specifically, theImpact Taskforce provided an indicative
list of ten investment strategies that
contribute to the delivery of the three
Elements and therefore constitutepriority areas for just transition finance.

1

Climate and environmental action•

Greenhouse gas emission mitigation,
reduction, and removal•

Adaptation and resilience•

Biodiversity and natural capital – climate andenvironmental effects•

Reduction of pollution or degradation ofnatural environments

2

Socio-economic distribution and equity•

Fair distribution of climate change costs
and benefits between developed anddeveloping countries and between regions
and communities within countries, based ona place-based lens 1•

Inclusive opportunities for decent jobs(including re-skilling where jobs are lost),
delivering fair income, security in theworkplace and social protection for families•

Accessibility and affordability of products
and services•

Livelihood enhancement and social justicefor all, across regions, communities, andindividuals, including marginalised andunderserved groups•

Biodiversity and natural capital – socioeconomic effects

3

Community voice•

Social dialogue and stakeholder engagement
through a participatory voice and inclusion indecision making for those affected and thosefrequently excluded and/or marginalised,
including communities and people

See the Impact Investing Institute’s website for an explanation ofplace-based impact investing1

14 | Just Transition Criteria: How to align investments with a just transition

3. The Just Transition Criteria
This section lays out the Just Transition Criteria that help to design productsaligned with just transition outcomes.
Understanding and using theCriteria
As illustrated in Figure 2, the Just
Transition Criteria are built around athree-layer structure that captures
and articulates the contributionof the product and its underlying
investments to just transition
outcomes. Each of the three
underlying criteria must be met for a
product to be considered as alignedwith the overall Criteria.
Each criterion is presented in
the section below as a set ofminimum expectations for its
fulfilment, supplemented by further
considerations for implementationand illustrated by an example. Users
wishing to implement the Criteria
within products are encouraged
to look at the Criteria in order, as
the product-level commitments
under Criterion 1 should drive theimplementation of the other two
criteria.
The Criteria should be read in parallelwith Appendices I and II of thisdocument. The appendices provide
an indicative list of disclosuresand indicators, based on major
frameworks, that can be used asa starting point to demonstratefulfilment of the Criteria. We intend
to iterate the Criteria in line with
developments within industry andmajor regulatory changes to ensure
their relevance and encourage theirbroad adoption.
Specific considerations for use byasset managers
Assets managers are the primary
intended users of the Criteria.
For each of the Criteria below,
the document provides further

considerations for implementation
by asset managers. Asset managers
are invited to make use of theCriteria as part of:• Designing new products alignedwith a just transition.
• Adapting existing products todeliver just transition outcomes(for example, by augmenting thesocial impact considerations ofclimate-related products).
• Identifying and engaging
with underlying investments
according to their contribution tojust transition outcomes.
The Criteria also provide a usefulframework that asset managers
can use to embed just transition
considerations into:• Formalised communications
with distributors and investors
regarding the alignment of theirproducts with just transition
outcomes.
• Reporting in relation to thepositive (and potential negative)
outcomes of investments.
When using the Criteria for such
purposes, the exact form of
disclosures against the Criteria
is left to users. Whilst we would
encourage the provision of selfcontained disclosures focusing on
the just transition characteristicsof their products, investors mayalternatively integrate reporting
against the Criteria in existingproduct disclosures, for example
against TCFD, jurisdictional
requirements, or in wider impact
reporting.2

www.impactinvest.org.uk | 15

We are, in addition, exploring thepossible launch of a just transition
label, as further detailed in Section
4. The just transition label would
recognise products that candemonstrate fulfilment of theCriteria, supported by a common
disclosure process and independent
verification. We welcome feedback
and expressions of interest on the
proposal for a just transition label.
Specific considerations for use byasset owners and other allocators
Whilst this document has beendeveloped primarily for use by asset
managers, asset owners are also
encouraged to make use of theCriteria. In particular, asset owners
can use the Criteria as a tool tosupport:• Investing in just transition-aligned
products (for externally managed
allocations).

• Manager selection, by requiring
just transition considerations in
the investment mandates they
put out to tender, encouraging
asset managers to adopt theCriteria and use them wherever
possible to design or adapt the
products in which the asset
owners invest.
• Due diligence, by assessing(alone or alongside investment
consultants) how just transition
considerations, as captured by
the Criteria, are implemented byasset managers when conducting
due diligence of externallymanaged products.
• Engagement with their appointed
asset managers, advisors, or
consultants, requiring disclosureof how they take account of justtransition considerations, as
captured by the Criteria, within
their investment processes andWhilst this document
has been developed
primarily for use by asset
managers, asset owners
are also encouraged tomake use of the Criteria.
investment strategies. By doing
so, asset owners signal that thisis an important consideration forboth investors and investees tobegin assessing, measuring, andmanaging.
• Monitoring where transition risk
is deemed material – the Criteria
can provide relevant indicators
against which to assess
performance over time.
Asset owners can additionallyenhance their existing climate

16 | Just Transition Criteria: How to align investments with a just transition

strategies with specific reference
to just transition principles, interms of how they integrate
objectives relating to the Elements
into their investment philosophy,
due diligence, procurement, andappointment of external asset
managers. Similarly, the Criteria
may be used to augment existing
disclosures (e.g., under TCFD or
jurisdictional requirements) with justtransition characteristics.
Acknowledging their critical rolein financing a just transition,
particularly in the Global South,

other allocators (such as DFIs andMDBs) are invited to make use of
the Criteria in the ways describedabove that are most relevant for
their specific activities. For example,
the Criteria may provide a useful
tool against which to assess thealignment of their respective
portfolios against just transition
outcomes. They might also be
helpful in evaluating the contributionof proposed investments to local
just transition needs. Finally, theymight be helpful in the context
of blended finance or technicalassistance activities, by providing

a common frame of reference forthe different types of stakeholders
involved (for example, concessionaland commercial investors, fundmanagers, advisors) to align on justtransition objectives.

For example, reporting against the Criteria could
be integrated into existing reporting against the
TCFD’s four pillars of Governance, Strategy, Risk
Management, and Metrics and Targets, against which
the Criteria can be mapped.
2

Figure 2: Overall architecture of the Just Transition Criteria

Timeframe

Element 1

Element 2

Element 3

Advance climate andenvironmental action

Improvesocio-economic
distribution and equity

Increase
community voice

Product (T)Criterion 1: There is a product-level commitment
to the three Just Transition Elements
Demonstrated via, e.g., a theory of change, commitment statement or investment
objective and supported by a description of the processes applied to investment
selection, monitoring and divestment - see Criteria 2 and 3

Criterion 2: Each investment within the product is assessed
to avoid harm to any of the three Elements
Demonstrated via selected disclosures and indicators and, where appropriate,
identified safeguards

Criterion 3: Through its investments, the product makes a positive
aggregate contribution to all three Elements and, over time, each underlying
investment contributes to all three Elements
Demonstrated via selected KPIs at product and investment level

Product(T+N* years)*N defined as partof Criterion 1

Product seeks to deepen and broaden aggregate positive contribution to all
three Elements at product-level and at the level of each underlying investment

www.impactinvest.org.uk | 17

Criterion 1: There is a product-level commitment
to the three Just Transition Elements
Criterion 1 is fulfilled through a
product-level commitment tocontributing towards the three
Elements and detail about how
the overall investment strategy(the defined principles by which aninvestor selects investments basedon risk, return and contribution
to their desired objective) andinvestment process facilitate
the achievement of targeted justtransition outcomes. In the spirit ofa just transition, asset managers(referred to as “managers” fromhere on) are expected to embed thecommunity voice element in theinvestment strategy and process, as
relevant to the specific product.3
At a minimum, this commitment
should explicitly and plausibly:
a. Identify the issue that the productis aiming to address and how it isrelevant to a just transitionb. Articulate how the product’s
strategy contributes toaddressing the issue through atheory of change or similar meansof demonstration (e.g., impact
narrative). This should cover:• the expected outcomes the
product aims to achieve• the respective contributions of
the investor on the one hand,and investee companies and/or
projects (as applicable) on theother hand
• the steps required to makethe respective contributions
possiblec. Specify the safeguards foravoiding and mitigating negative
impacts, and the key performanceindicators (KPIs) for assessing
positive impacts (see Criteria 2
and 3, respectively), and articulate
how these contribute to theachievement of the product’s
expected just transition outcomesd. Specify a time horizon andtargets for progress against
expected outcomes, including acurrent baseline (T) and changes
at T+1, 2…n that need to happen
to fulfil the positive contribution
to all three Elements over time(see Criterion 3)
e. Outline the product’s investment
process, including the selection
and monitoring of assets,considering the safeguards(Criterion 2) and the KPIs
(Criterion 3)
f. State the product’s mitigationand escalation strategies whenintended outcomes are notachieved in line with targets,
which may include engagement,
voting and divestmentg. Articulate how the product will
embed Element 3 (community
voice) within the investment
strategy and process, both
initially when setting thecommitment and on an ongoingbasis. It is expected that there
should be an ongoing feedback
loop so that community voice
informs measurement andmanagement of outcomes acrossthe whole theory of change 4

Further considerations for
implementation
Managers are expected to pay
particular attention to the coherenceof selected safeguards and KPIs (seeCriteria 2 and 3) with the productlevel just transition commitment,
to ensure the link between productcommitment and chosen metrics isplausible and demonstrable.
Managers can, where appropriate,
leverage and build upon existing
disclosures in fulfilling the
expectations above. They may,for example, outline product-levelcommitments to the just transition in
relevant pre-contractual materials or
augment their TCFD disclosures by
incorporating considerations relating
to social and community impact.
To reflect the needs of specificgeographies, managers areencouraged, where possible, tomake use of relevant frameworks
and roadmaps that may exist at aregional, national, or sub-national
level. For example, some geographies
might have identified just transition
priorities, which should provide abasis for assessing the relevanceof specific investments (and

18 | Just Transition Criteria: How to align investments with a just transition

opportunities for engagement) froma just transition perspective. If formal
just transition priorities are notpublicly available, some indication
may be found in frameworks such as
Nationally Determined Contributions(NDCs) to the Paris Agreement or
National Sustainable Development
Strategies (NSDS) towards the SDGs.
In line with emerging industry
practice and, increasingly, regulatory
expectations , a theory of change
is the suggested means of meeting
component b) of the commitment
outlined above. A theory of change isa conceptual model used to describe

and map how specific inputs andactivities lead to positive change,measured in terms of ‘outputs’
and ‘outcomes’. This includes acomprehensive description andillustration of how and why a desiredchange is expected to occur in aparticular context (see Figure 3).

Resources to identify best community voice mechanisms include a compendium of good practices collected by
the Impact Taskforce - Mobilising institutional capital towards the SDGs and a just transition (p. 181); Asset Based
Community development; the Ladder of Participation; Involve.
3

For example, community engagement activities may help to identify local social needs and opportunities that can thenbe used to refine the intended positive contribution to Element 2. To facilitate this, community voice should be sought
throughout the lifecycle of the product, feeding into pre-investment (e.g., due diligence) and during ownership of therelated asset.
4

For illustrative purposes, an approach using TCFD’s four pillars could consider under 1) Governance – processes, controls
and procedures used to monitor and manage climate/social/community-related risks and opportunities; 2) Strategy –the actual and potential impacts of climate/social/community-related risks and opportunities on the activities, strategy
and financial planning; 3) Risk Management - the process(es) by which climate/social/community-related risks andopportunities are identified, assessed and managed; and 4) Metrics and Targets – how identified climate, social andcommunity risks and opportunities are measured, monitored and managed, in order to assess performance progress
towards its targets.
5

For instance, the Financial Conduct Authority’s Consultation Paper on Sustainability Disclosure Requirements (SDR)
and investment labels lists the use of a theory of change as a requirement of the proposed “Sustainable Impact” label.
6

Figure 3: Example of theory of change (adapted from GIIN, 2022)
Input

Activities

Outputs

Outcomes

Impacts

Example of product-level commitment for illustrative Clean Energy Just
Transition equity product
Investment Objective: The fundaims to provide capital growth byinvesting in companies worldwide
that are involved in the provision ordevelopment of low-carbon (“clean”)
energy while encouraging a justtransition.
Investment Policy: The fund isactively managed and invests
at least [X]% of its assets incompanies that generate at least[X]% of their revenue from activities
that contribute to the provisionof low-carbon energy, including
through energy production,
distribution, storage, transport,
supply chains or technologies,
and that actively engage and seek
to support material stakeholder
groups towards a just and equitabletransition to net zero.
Just transition ambition: Thefund aims to achieve profit withpurpose by combining market ratefinancial returns with intentional
positive environmental, social andcommunity impact, through offering
appropriate, affordable, high quality
clean energy to households,
businesses, and the grid in lowincome regions. The fund places
a specific focus on identifying
companies that seek to engage andbenefit local communities in theiractivities.
Statement: The fund aims toachieve the above ambition throughthe following activities in relation to
the three just transition Elements:• Element 1: financing the
expansion and adoptionof clean energy sources
through providing affordable
and accessible clean energy
products to a range ofconsumers.
• Element 2: improving
accessibility to essential energy
services of underserved andvulnerable consumers who
would otherwise struggle toaccess reliable equivalent
services due to identified market
failures, while prioritising a local
supply chain and living wage
employment or local equivalent.
• Element 3: supporting
customer-centric companies
that design products/services
around the essential needs ofthe targeted underserved andvulnerable customer segments,
incorporating customer
feedback and engaging withlocal communities to identify
needs and opportunities related
to their activities.
Considerations for avoiding
potential negative impacts:• The fund adheres to thefollowing frameworks: UN
Global Compact, UN Guiding
Principles on Business andHuman Rights, OECD Guidelines
for Multinational Enterprises
and ILO Declaration of Principles
concerning Multinational

www.impactinvest.org.uk | 19Enterprises and Social Policy.

and negative contribution
to the UN SDGs and thetargets underlying these.
The methodology comprises
assigning KPIs to relevant
environmental, social andcommunity targets, against
which the potential investment
universe is scored to identify
those companies who aremost positively contributing
across the three Just Transition
Elements. The fund may use,
where relevant, specialist
community engagement
services such as 60 Decibels
and IIX Values to inform andverify contribution to Element 3.

• In addition, the fund will makeuse of various disclosures andindicators deemed relevantby the manager across eachof the Elements in answering
key questions around how theinvestee companies consider
their environmental, social andcommunity impacts.
• Data for the disclosures/indicators and adherence toframeworks will be sourced
primarily from direct company
research, local/national
government, stakeholder
surveys and third-party data
providers.
Considerations for demonstrating
positive contribution:• The fund adopts a proprietary
methodology to assess positive

Just transition in the investment
process, including community
voice:• All potential investments arereviewed from both a financial/investment committee
perspective as well as an impact
committee perspective, requiring
approval from both to be eligible
for the portfolio.
• Local research teams in thetarget region(s) conduct due
diligence with prospective/
current investments tounderstand existing communityand stakeholder engagements.
The manager will establish abaseline at point of investment
with respect to KPI performance,with the intention to engage andimprove company performanceagainst set KPIs over a defined
timeframe. Where relevant,the manager will support
the relevant companies infurthering their contribution to
the three Elements, including
by supporting customer andcommunity engagement.

Theory of change:
Input

Activities

Outputs

Outcomes

Impacts

Defined justtransition problem
statement andopportunity

Identify clean
energy investment
opportunities

Reduced highcarbon energy
generation

Lower carbon
intensity of gridContribution toSDG 7 Affordable
and Clean Energy

Assessinvestments’potential for harm
across all three
Just Transition
Elements

Reduced use offossil fuels

Defined justtransition
investment
process
Defined productlevel commitment
and ambition

Assessinvestments’contribution to
the three Just
Transition Elements
Initial, then ongoing,stakeholder
feedback loop

Higher energy
efficiency
Reduced cost ofclean energy
More decent jobs
across the low
carbon supply
chain

Reduction inemissionsImproved access toclean energy

Contribution toSDG 8 Decent
Work andEconomic GrowthBetter employment
prospects infuture-facing
sectors

Contribution to
local inclusive
and sustainable
development

Customers andlocal communities
empoweredMore and better
processes forstakeholder
engagement

Community Voice (integrated throughout process)Continuous feedback loop over time, leading to adjustment of theory of change(e.g., customer survey mechanism; introducing community share rights for participation)

20 | Just Transition Criteria: How to align investments with a just transition

Criterion 2: Each investment within the product isassessed to avoid harm to any of the three Elements
Criterion 2 is demonstrated througha commitment to avoid and, where
necessary, mitigate negative
impacts or harmful consequences
to any of the Elements that mightarise through investment activities.
This is to avoid a situation where,
for example, a product makes anoverall positive contribution to all
three Elements, whilst (inadvertently
or otherwise) holding investmentsthat also have a significant negative
impact on one or more of the
Elements. It is expected that, should
an investment fail to pass thethresholds set below, it would not be
selected if at investment selection
stage, or, in the case of an existing
investment, would be subject to themitigation and escalation process
outlined as part of Criterion 1.

To fulfil Criterion 2, managers
should, at a minimum:
a. Provide a statement of adherence
to relevant high-level frameworks,
such as the OECD Guidelines
for Multinational Enterprises,
UN Guiding Principles on
Business and Human Rights,
the International FinanceCorporation’s PerformanceStandards and others listed inAppendix I.
b. State the processes in place
to assess, monitor and engage
to improve (where relevant)actual and potential material
negative impacts and harmful
consequences of investments toany of the three Elements, using
the relevant disclosures andindicators from the list provided
in Appendix I (to the extent
possible – see below). Materiality
thresholds may be established,for example, with consideration
to local sector average. Suchprocesses should both cover
the initial investment selection
and due diligence stage and be
carried-out on an ongoing basis
throughout the lifespan of the
product.

c. State the specific environmental,social, and community-related
safeguards put in place forinvestments within the product,be they qualitative or quantitative,
and how these are monitored.
Further considerations for
implementation
In fulfilling the requirements above,
managers are expected to be as
specific as possible regarding
the methodologies, processes,
disclosures, and indicators which
they use in monitoring, preventing,and engaging to improve potential
negative impacts and harmful
consequences of investments.
Recognising the number of existing
and upcoming approaches available,
we encourage managers to use andbuild upon their existing processes
where possible. For example, theSustainable Finance Disclosure
Regulation (SFDR) “Do No Significant
Harm” requirements may be usedin support of the above. Similarly,
managers may refer to corporate
disclosures on climate-related risks– extending these to include socialand community considerations –against the TCFD’s four pillars.
We have provided an indicative
list of disclosures and indicators
in Appendix I to support theidentification of key risks ofnegative impact to a product’s justtransition objectives, based on
existing disclosures frameworks
that managers are likely to beSpecific consideration
should be given to
the abilities of certain
companies to meet therequested disclosuresand indictors

www.impactinvest.org.uk | 21

using already. Disclosures andindicators are classified by the
Element for which they are the mostmaterial. Managers are expected
to conduct due diligence against
these disclosures (including, where
relevant, through engagement withthe management team/boards ofunderlying investments), to avoid
and/or mitigate potential harmful
consequences resulting fromtheir investments. Due diligenceapproaches will be specific to eachmanager, strategy, and product – anillustrative example is provided below.
Specific consideration should
be given to the abilities ofcertain companies to meetthe requested disclosures andindictors, e.g., depending on theirsize or location. For example,
for listed or larger companies
based in advanced markets, it
can be reasonably expected thatsafeguards around stakeholder
engagement, availability ofgrievance mechanisms, genderbased violence and harassment
are in place. Similarly, for industries
with potential exposure to conflictminerals or forced labour, a suppliercode of conduct and supply chain
due diligence would constitute bestpractice. For companies that aresmaller or based in, for example,
emerging and frontier markets,
expectations of formal disclosure
requirements, or their periodicity,
may be adapted to the context.
In such instances, it may beappropriate to use alternatives toformal disclosures and indicators;
for example, evidence of companylevel practice or credible intent toadopt or improve practices in linewith the respective Element, inplace of policies.
We have crowdsourced thedisclosures and indicators inAppendix I from real-life examples
of investment products provided by
Just Transition Finance Challenge
participants and other investors. The
list aims to promote convergenceand comparability between different
just transition products. Managers
are therefore encouraged to makeuse of the list to the largest extent
possible to assess the key risksof negative impact to their justThe disclosures andindicators used havebeen crowdsourced
from real-life examples
of investment
products provided by
Just Transition Finance
Challenge participants
and other investorstransition objectives. Nevertheless,
we recognise that some products
may use different disclosures andindicators. In such instances, wewould expect managers to provide ashort explanation of why alternative
disclosures and indicators are
required. We intend to iterate the list
in response to further suggestions
from users of the Criteria and wider
interested parties. We will also monitor
other key reporting initiatives andmarket or regulatory developments
for evidence of evolving good practicein reporting on factors that arematerial to the Elements.

22 | Just Transition Criteria: How to align investments with a just transition

Example of assessment for potential negative impacts or harmful
consequences for illustrative Clean Energy Just Transition equity product
The below disclosures andindicators are used as part of theinvestment process to ensurethat all investments meet theminimum requirements across
the Just Transition Elements. For
disclosures, in addition to net zerotransition plans (Element 1), there
is a requirement for investablecompanies to have and publish
documentation/reporting on,
for example, health and safety(Element 2) and social dialogue or
stakeholder engagement (Element3). For indicators, these are
identified along with a minimum
expectation (or safeguard) thatinvestable companies must meetand maintain, for example, annual
reduction of carbon intensity(Element 1), local employment(Element 2) and evidence and key
outcomes of engagement withstakeholders (Element 3).
As the fund invests in companies
located in emerging markets, it
exercises a degree of flexibility

in expecting formal disclosuresfrom all companies. However,
the manager clearly signals its
expectations regarding eachof the three Elements to allcompanies and engages tothe extent possible to support
companies in improving relevant
disclosures, while monitoring any
evidence of negative impact on
any of the three Elements.

Indicators

Disclosures

Investment strategy

Figure 5: Example disclosures and indicators used to fulfil Criterion 2
for illustrative Clean Energy Just Transition equity productElement 1

Element 2

Element 3

Climate andenvironmental action

Socio-economic distribution
and equity

Community voice

GHG emissions mitigation,
reduction and removal

Fair distribution of climatechange costs;
Inclusive opportunities
for decent jobs

• Company transition plan
for reaching net zero
emissions using credible
methodologies (SBTi,
CA100+, TCFD...)• Proprietary climate risk
assessment scorecard• Carbon intensity (tCO2e)(against targets set out incompany transition plan)

Social dialogue andstakeholder engagement• Human rights policy• Health and safety policy• Social dialogue policy• Transition plan including
consideration of social
impacts• Stakeholder and/or
community engagement
policy• Employment policy• Minimum % of local
employment• No violations of UNGC/
UNGP/OECD MNEGuidelines• Evidence of stakeholder
feedback and resulting
decision-making, as
relevant• Incidents of violations
involving rights ofIndigenous peoples (GRI)www.impactinvest.org.uk | 23

Example of strategy-specific due diligence approach
The below questions are part of the due diligence approach pursued by the manager of the Clean Energy
Just Transition equity product when selecting investments. The proprietary just transition risk assessmentscorecard considers both general and strategy specific questions drawn from a range of industry practice, forexample, Global Reporting Initiative (GRI) 3 – Material Topics.

Level 1 questions (general):Level 2 questions (strategy specific):• Who are the key stakeholder groups
that are relevant to this investment/
issuer?

• Does the investment/issuer acknowledge the social
risks and opportunities arising from the climatetransition?

• What are the potential and actual
negative impacts created by thisinvestment/issuer?

• What are the potential negative social consequencesof the investment’s/issuer’s planned climatetransition? How is this captured and addressed?

• Materiality assessment – who is
impacted most materially? Is this bydirect operations or through supply
chain / business relationships?

• How does the investment’s/issuer’s board and othergovernance fora engage on social issues related toclimate change?

• What actions have been identified/taken to monitor, manage andmitigate these impacts?
• What steps has the investment/
issuer taken to engage with its
stakeholders, including local
government, labour unions and local
communities, in the development of
its climate strategy? How has thisfeedback been incorporated?

• Has the investment/issuer identified operations
or jobs within its business or value chain at risk inthis transition? How have they identified impacted
stakeholders?
• How are accessibility and affordability of theinvestment’s/issuer’s products/services consideredgiven their target population?
• In the divestment or decommissioning of any assets,e.g., an industrial site, how are potential negativesocial and environmental consequences mitigatedand remediated?

24 | Just Transition Criteria: How to align investments with a just transition

Criterion 3: Through its investments, the product makes
a positive aggregate contribution to all three Elements
and, over time, each underlying investment contributes
to all three Elements
Criterion 3 ensures that the productcontributes positively to all threeof the Just Transition Elements. To
fulfil this Criterion, managers should
demonstrate that there is:a. From the onset (i.e., when Criteria
are first applied), a positive
contribution to all three Elements
at a product level, based on
the aggregation of the positive
contribution of each of theunderlying investment; andb. Over time (i.e., in line with thetimelines specified as part of
Criterion 1), a positive contribution
to all three Elements by eachunderlying investment, throughthe progressive alignment of
the portfolio with just transition
objectives.
The above positive contribution
should be evidenced throughappropriate, credible KPIs, drawing
from the indicative list provided inAppendix II (to the extent possible –see below). Over time, there shouldbe evidence of progress against the

The expectation is that,over time, each underlying
investment contributes toall three Elements

selected KPIs at regular (usuallyannual) intervals, in line with the
product-level commitments outlinedin Criterion 1.
Further considerations for
implementation
The guiding principle behind
Criterion 3 is that, in order to claim ademonstrable positive contribution to
the Elements, a manager needs to beable to measure and report that theirproduct and, over time, its underlying
investments, put more into theenvironment, society and the global
economy than they take out. Typicalexamples of such a contribution
across the three Elements can
include a net reduction in overall
GHG emissions, the restorationand protection of additional natural
ecosystems, a net gain in thenumber of decent jobs created within
a community, and the adoptionof mechanisms for community
engagement in business activities.
An indicative list of KPIs that canbe used to demonstrate positive
contribution against each of the
Elements is provided in Appendix II.
Managers are expected to identify aset of KPIs from this list that are themost relevant for their product’s justtransition commitment statement,
objectives, and investment strategy,
as outlined in Criterion 1; and select,for each investment, the most
relevant KPIs from this set. The
number of KPIs a manager identifies
at product level, and selects atinvestment level, is at their discretion,
depending on factors such as
strategy relevance, the availabilityof investee-level disclosures, andfeasibility of periodic reporting.
We have crowdsourced the KPIs in
Appendix II from real-life examples
of investment products provided by
Just Transition Finance Challenge
participants. The list aims to promote
convergence and comparability
between different just transition
products. Managers are therefore
encouraged to select from the list
the most relevant KPIs to assess thejust transition contribution of theirinvestments.
Nevertheless, we recognise thatsome products may use different
KPIs. In such instances, we would
expect managers to provide a short
explanation of why alternative KPIs
are required. We aim to iterate thelist in response to suggestions
from users of the Criteria and wider
interested parties, and in partnershipwith key initiatives.
In the requirements to fulfil Criterion
3, a distinction has been madebetween a product level, aggregate
contribution to all three Elements,

Figure 6: Qualitative and quantitative breakdown of positive contribution to be demonstrated
Contribution

Qualitative

Quantitative

Product level

Positive contribution to all
three Elements (from the onset,
aggregated)

Progress against selected KPIs
for all three Elements (over time,
aggregated)

Underlying investment

Positive contribution to all three
Elements (over time, investmentspecific)

Progress against selected KPIs
for all three Elements (over time,
investment-specific)

www.impactinvest.org.uk | 25

which should be the case from theonset, and the contribution of eachunderlying investment to the three
Elements, which can be achieved overtime. This distinction accommodates
different starting points, for example,
a climate-first or social-first strategy,
and recognises the opportunity forfurthering the contribution to a justtransition across investments held in
the product through mechanisms forinvestor contribution (detailed below).
At the same time, the uniquenessand integrity of the just transition
approach is maintained, as there
should always be a demonstrable
contribution to all three Elements at a
product level and, over time, by eachunderlying investment.
The positive contribution at productlevel and at the level of underlying
investments can be demonstrated
across both a qualitative andquantitative dimension, assummarised in figure 6.
At a product level, the positive
contribution should be an aggregateof the positive contribution by eachunderlying investment as per the
product-level commitment outlinedin Criterion 1.
From a qualitative perspective, apositive contribution should be madeto all three Elements. Whilst thismay, in practice, qualify a productin which individual underlying
investments are only contributing to
one or two Elements at the onset, therequirement to expand and deepen
the contribution of each underlying
investment over time ensures thisremains only a temporary state.7
Managers are expected to specify
which investments contribute toeach Element.
From a quantitative perspective, it
is expected that there is positive
progress towards the productlevel commitment made and theset of KPIs selected as part of
Criterion 1. For example, if emissions
intensity is a defined KPI for
Element 1, this should be reported
on, and the expectation over timeis that emissions intensity reduces
according to specified targets acrossthe product.
At the level of underlying
investments, managers should
monitor and demonstrate thecontribution of each investment toeach of the three Elements over time.
The qualitative expectation isthat, over time, each underlying
investment contributes to all three
Elements. As a baseline, it is expectedthat each investment, from theonset, contributes to at least one
Element, as it would be otherwise
difficult to justify their inclusion ina just transition aligned product. A
likely situation is that the underlying
investment can make a demonstrable
contribution to one or two but not
all three of the Elements. In specificsituations, typically in the case oftransitioning assets or companies
that cannot immediately provide
selected KPIs, it may be that an
investment does not demonstrably
contribute to any Element. Bothsituations are acceptable as astarting point, provided that thefollowing conditions are met:
• There is a clear identification of
any investment that does not yet
contribute to all three Elements
as part of disclosures against
Criterion 3;• The investment remains alignedwith the requirements of Criteria
1 and 2 (including the requirement
to do no significant harm to anyof the Elements and associatedmitigation and escalation policies);and• There is a stated commitmentby the manager to drive thecontribution of the investment
towards all three Elements, forexample, through increasing
disclosures or supportingchanges in business practices
at the level of the investment, so
that, over time, it contributes to all
three Elements.
From a quantitative perspective, theManagers are invited
to highlight specificinterventions (forexample, investment,
engagement, or exit) that
had a material impact
on progress towards the
product-level commitment
measurement of progress against
the selected KPIs at the level ofeach investment is left to thediscretion of the manager using their
existing IMMR tools and processes.
The manager should evidence theireffort to increase the qualitativeand quantitative contribution ofeach underlying investment to
the three Elements in line withthe commitment statement underCriterion 1. They may wish tohighlight specific interventions (forexample, investment, engagement,
or exit) that had a material impact
on progress towards the productlevel commitment. Mechanisms to
improve the contribution of each
investment to the three Elements
are left to the discretion of the
manager, who is encouraged toincorporate available good practicemost relevant to the strategy.8
Timelines for the alignment of each
investment with all three Elements
are also left to determination of
the manager, again following themost relevant good practice. The
exceptions are investments which
do not contribute to any Element,
where a positive contribution toat least one Element should beachieved within a year or otherwise
divested. Figure 7 illustrates thisprocess.

This also reflects the current state opportunity for
improvement on disclosures and engagement on the three
Elements, in particular community voice, which the Criteria
aim to improve.
7

These might include, for example, mechanisms identified
by the Impact Management Project (IMP), the Operating
Principles for Impact Management (OPIM) or the GIIN’s
Guidance for Pursuing Impact in Listed Equities andequivalents in other asset classes.
8

26 | Just Transition Criteria: How to align investments with a just transition

Figure 7: Example of positive contribution across example key performance indicators, per Element and over time
Objective: “The fund aims to provide
capital growth by investing incompanies worldwide that are involvedin the provision or development of
low-carbon (“clean”) energy while
encouraging a just transition”

Policy: “The fund is actively managed and invests at least [X] % of its
assets in companies that generate at least [X] % of their revenue from
activities that contribute to the provision of low-carbon energy, including
through energy production, distribution, storage, transport, supply chainsor technologies, and that actively engage and seek to support material
stakeholder groups towards a just and equitable transition to net zero.”Element 1: Advance climate and environmental action
Product KPIs

% Revenue
from renewableenergyInvestment A

Y# Patents inclean energy

Carbon intensity(reducing)Y

Y

Investment B
Investment C

CO2 avoided p.a.

Y

Y

Y

Y

Y

% of women insenior leadership

Gender pay gap
below (X)Element 2: Improve socio-economic distribution and equity
Product KPIs

Transitional job
programmes% of employees
paid living wage

Investment AYY

Investment BYY

Investment C

Y

Y

Y

Element 3: Increase community voice
Product KPIs

Engagement
programme withaffected communities

Investment A

Y

Investment B

Y

Investment C

Y

At onsetT+ 1 year

T+ 2 years# of community
representatives indecision making forums

Periodic survey onservice satisfaction
and affordabilityYY

www.impactinvest.org.uk | 27

The just transition is a necessary
agenda for investors to workon, one that is fully consistent
with the fiduciary commitment
to responsible investment andthe integration of environmental,social and governance (ESG)
dimensions in all decision-making.
Grantham Research Institute on Climate
Change and the Environment, London
School of Economics and Political Science
Climate Change and the Just Transition:
A Guide for Investor Action

28 | Just Transition Criteria: How to align investments with a just transition

4. Towards a justtransition label?
To recognise financial actors who have aligned their investments with a justtransition, we are exploring the launch of a dedicated just transition label.
This section provides a summary of how such a label could work.
Purpose of a label
Should a label be launched, financial
actors that have implemented theCriteria could apply for and, uponassessment, be granted a justtransition label recognising theirleadership and good practice inadopting a just transition approachin their investments.
In addition to the Criteria, which
would remain publicly available,

a label could further serve tocatalyse financial actors tointegrate just transition principles
into their investment strategies.
For asset managers, it would
provide opportunities for market
differentiation and access toinvestment by asset owners
recognising the label. For asset
owners, it would provide more
visibility and comparability between
products intending to deliver ajust transition, by validating suchproducts’ application of the Criteria.
Positioning and additionality ofa just transition label
There is a range of sustainability
labels currently available on themarket, which are either voluntary orderive from regulatory requirements.
As figure 8 illustrates, sustainability
labels differ both in their coverage ofsectors (financial vs. non-financial)

Figure 8: Indicative mapping of sustainability labels and positioning of a potential just transition label(source: Oliver Wyman research)www.impactinvest.org.uk | 29

A just transition label would
further catalyse financial
actors to integrate justtransition principles into
their investment strategies.
and sustainability areas (climate
focus vs. broader ESG topics); there
is currently no label with an explicit
just transition focus.
A just transition label would remain
voluntary and be designed to becompatible, to the extent possible,
with current labels, whilst rewarding
the integration of environmental-,social- and communities-related
outcomes. By reflecting the three-tierstructure of the Criteria, including anemphasis on positive contribution(and not solely avoidance of harm),
it would also reflect evolving goodpractice in the market.
Next steps towards a label
We are further assessing thefund labelling landscape, gauging
market interest, and analysing
regulatory developments, such as
the UK Sustainability Disclosure
Requirements (SDR) and related
investment labelling regime, andprogress towards the EU’s proposed
Ecolabel, to ensure the additionality
and interoperability of any potential
just transition label.
In parallel, we are also exploring
operational models for a label,building on observed market bestpractice, looking particularly at
possible certification approaches
and governance and organisational
set-ups.

If a just transition label wasestablished, we envisage providing
a body of resources to support its
adoption. This could include, forexample, free and impartial advisory
services to support applications forthe just transition label, case studies,guidance, and workshops and further
peer-learning opportunities.

We welcome all expressionsof interest in a potential justtransition label, particularly
from asset managers, asset
owners, other users of theCriteria and potential delivery
partners. Please register
your interest here.

30 | Just Transition Criteria: How to align investments with a just transition

Appendix

www.impactinvest.org.uk | 31

I. List of example disclosures and indicators forfulfilment of Criterion 2: preventing potential negative
impacts and harmful consequences of investments
The disclosures and indicators listed
below provide examples means ofdemonstrating fulfilment of Criterion
2. Disclosures and indicators havebeen crowdsourced from theorganisations and individuals who
participated in the development of
the Criteria and draw predominantly
from the following frameworks:• Organisation for Economic
Co-operation Guidelines forMultinational Enterprises• UN Guiding Principles on
Business and Human Rights• International Labour Organization
Declaration of Principles
concerning Multinational
Enterprises and Social Policy• International FinanceCorporation’s PerformanceStandards on Environmental andSocial Sustainability• International Labour Organization
Guidelines for a Just Transition• Sustainable Finance Disclosure
Regulation, including principle
adverse impacts (PAIs)• UN Global Compact• Asian Development Bank’s
Safeguards Policy, including
Environment Safeguards,
Involuntary Resettlement andIndigenous Peoples• World Bank’s Environmental andSocial Framework
To promote convergence andcomparability between different justtransition products, managers areencouraged to select the disclosuresand indicators most relevant totheir investment strategy fromthe list below. We recognise thatsome products may use different

disclosures and indicators. In such
instances, we expect managers
to provide a short explanation of
why alternative disclosures andindicators are required.
We intend to iterate the list in
response to further suggestions
from users of the Criteria andwider interested parties, as well
as evolution in the disclosure andregulatory landscape. Users are also
encouraged to refer to good practicefor specific types of investment andgeographies to guide their selectionof disclosures and indicators.9

See, for example, the European Investment Bank’s Joint
Methodology for Tracking Climate Change Adaptation
Finance and BII’s Transition Finance for Africa Accelerating
Decarbonisation Efforts in Sectors Critical to Economic
Development: Guidance.
932 | Just Transition Criteria: How to align investments with a just transition

Element 1: Advance climate and environmental action
GHG Emission mitigation,
reduction, and removal

Example Disclosures• Robust net zero transition planor equivalent: a demonstrationof ambition to align with net
zero and acting to reduce
emissions (e.g., public Net Zeroambition statement, evidence of
implemented interventions)• Impact/risk assessments,
written disclosures against
reporting frameworks

Adaptation and resilience

Example Disclosures• Robust net zero transition planor equivalent: a demonstrationof ambition to align with net
zero and acting to reduce
emissions (e.g., public Net Zeroambition statement, evidence of
implemented interventions)• Impact/risk assessments,
written disclosures against
reporting frameworks

Biodiversity and natural capitalclimate and environmental effects

Example Indicators (summarised
GHG-related indicators – please
see Appendix II for detailed list)• GHG emissions (carbon footprint,
intensity, exposure to fossil
fuels)• Exposure to energy inefficient
assets (e.g. for real estate)

Example Indicators (summarised
GHG-related indicators – please
see Appendix II for detailed list)• GHG emissions (carbon footprint,
intensity, exposure to fossil
fuels)• Exposure to energy inefficient
assets (e.g. for real estate)

Example Disclosures

Example Indicators• Policy documents on approachto impact on biodiversity andnatural capital• Exposure to/activities negatively
affecting biodiversity-sensitiveareas• Biodiversity-linked risk
assessments• Exposure to habitat loss/
degradation• Evidence of due diligencein respect of impacts on
biodiversity and natural capital• Exposure to species loss

• Policy on deforestation/
protected areas• Exposure to soil/watercontamination• Natural capital disclosures
GHG Emission mitigation,
reduction, and removal

Example Disclosures

Example Indicators• Policy documents on approachto impact on pollution andnatural environment• Exposure to polluting activities• Biodiversity-linked risk
assessments• Exposure to species loss

• Evidence of due diligencein respect of impacts on
biodiversity and natural capital• Policy on deforestation/
protected areas• Natural capital disclosures• Exposure to habitat loss/
degradation• Exposure to soil/watercontamination• Emissions to water• Hazardous/radioactive waste
ratio

www.impactinvest.org.uk | 33

Element 2: Improve socio-economic distribution and equity
Fair distribution of climatechange costs and benefits
between developed/developing
countries and between regions
and communities within countries
based on a place-based lensExample Disclosures

Example Indicators• Taxes paid in operating
jurisdiction• Violations of UNGC, UNGP,OECD MNE Guidelines or otherinternational frameworks

Inclusive opportunities for decent
jobs (including reskilling wherejobs are lost), delivering fairincome, security in the workplaceand social protection for families

Example Disclosures• Rate of accidents• Robust net zero transition planor equivalent: a demonstrationof ambition to align with net
zero and acting to reduce
emissions (e.g., public Net Zeroambition statement, evidence of
implemented interventions)• Human rights score• Remediation policy (for loss anddamage)• Impact/risk assessments,
written disclosures against
reporting frameworks
Accessibility and affordability of
products and services

Example Disclosures• Distribution model recognises
underserved population
segments/markets• Pricing policy considers local
market nuances, GDP per capita

Livelihood enhancement andsocial justice and regions,communities and individuals,
including marginalised andunderserved groups

Example Disclosures• Transition plan considers
identified operations and/or jobs
at risk• Transition plan considers
remediation in respect of social
concerns• Transition plan considers
avoidance of displacement ofpeople• Presence of community benefit
agreements, project labour
agreements or similar

Biodiversity and natural capital –socio-economic effects

Example Disclosures• •Policy documents on approachto impact on biodiversity andnatural capital• Biodiversity-linked risk
assessments• Evidence of due diligencein respect of impacts on
biodiversity and natural capital• Policy on deforestation/
protected areas• Natural capital disclosures• Exposure to controversial
industries, e.g. weapons• Female and minority employees• Percentage of local employees• Percentage of local suppliers in
supply chain• Lowest wage paid to a direct
employee• Lowest wage paid to a contractor• Risk to human health; foodsecurity (as a result ofenvironmental damage)34 | Just Transition Criteria: How to align investments with a just transition

Element 3: Increase community voice
Social dialogue and stakeholder
engagement through aparticipatory voice and inclusion
in decision making for thoseaffected and those frequently
excluded and/or marginalised,
including communities and people

Example Disclosures

Example Indicators• Example Disclosures• # / effectiveness of worker
feedback forums• Stakeholder mapping• Stakeholder feedback/communication mechanisms• Impact assessments for harm
to native historic sites, cultural
heritage, and rights of indigenous
communities• Free, Prior and Informed Consent(FPIC) policy• Employee participation in tradeorganisations• Code of conduct• Grievance mechanism• # / effectiveness of consumer
feedback forums• Stakeholder consultations on
new projects/developments• Mechanisms for social dialogue• Incidents of violations involving
rights of Indigenous peoples• Inclusive engagement (withminority / vulnerable groups)

www.impactinvest.org.uk | 35

II. List of example KPIs for fulfilment of Criterion 3:
positive contribution towards just transition objectives
The KPIs listed below provide the means of demonstrating fulfilment of
Criterion 3. The list has been crowdsourced from founding participants
and draws primarily from the following frameworks and resources:• 2015 Paris Agreement• G7 Impact Taskforce• 2X Challenge Criteria• LuxFLAG• 60 Decibels surveys• Nordic Swan Ecolabel• Carbon Disclosure Project• Science-based Targets Guidelines• EU Taxonomy• Socially Responsible Investment
Label• European Bank for
Reconstruction and Development
Just Transition Initiative• Febelfin• FNG Siegel• GEF-8 Core Indicators• Global Reporting Initiative• South Africa Just Transition
Framework• Sustainable Finance Disclosure
Regulation• Taskforce on Climate-related
Financial Disclosures• Greenfin• The Science Based Targets
initiative• GRESB Standards• UK Stewardship Code• Green Climate Fund’s Integrated
Results Management Framework• UN Principles for Responsible
Investment• IFRS Sustainability DisclosureStandard• SASB industry Standards• Impact Investment Exchange
Values• International Labour Organization• UN SDGs• UNICEF Quality Standards forCommunity Engagement

As with the disclosures andindicators in Appendix I,
managers are encouraged to
select the KPIs most relevantto their investment strategy
from this list below. Some
products may use different
KPIs. In such instances, wewould expect managers toprovide a short explanationof why alternative KPIs are
required. We aim to iterate thelist in response to suggestions
from users of the Criteria andwider interested parties, as well
as evolution in the disclosureand regulatory landscape.

36 | Just Transition Criteria: How to align investments with a just transition

Element 1: Advance climate and environmental action• Households/businesses provided with access to clean energy (#)• Patents in clean energy (#)• Battery storage capacity created (MWh)
Adaptation and resilience

Example KPIs
• Areas protected from flooding (km)• Areas made more resilient (km)• $ value of assets made more resilient• People experiencing reduction in vulnerability (#)• Share of revenue from products which increase resilience (%)• Additional water availability (m3 p.a.)• Water saving (m3 p.a.)

Biodiversity and natural
capital-climate andenvironmental effects

Example KPIs
• Preserved terrestrial/marine habitats (km2)• Maintenance/safeguarding/increase of natural landscape, indigenous
species, flora, fauna etc.
• # forestry conservation personnel trained• % products sourced in accordance with NDPE (No Deforestation, No Peat, No
Exploitation) practices

Reduction of pollution ordegradation of the naturalenvironment

Example KPIs
• Land conservation area or activities• Net GHG emissions across activities• Amount of non-recycled waste (tonnes of waste per $)www.impactinvest.org.uk | 37

Element 2: Improve socio-economic distribution and equity
Fair distribution of climatechange costs and benefits
between developed/
developing countries
and between regions andcommunities within countries
based on a place-based lensExample KPIs

Inclusive opportunities
for decent jobs (including
reskilling where jobs arelost), delivering fair income,security in the workplace andsocial protection for families

Example KPIs

• Cost reductions achieved for small businesses• Increased # people with access to climate change opportunities(e.g., through ClimateTech)• Increased # people with access to climate resilience products/services• % employees provided with living wage (or equivalent)• % women in workforce• % women in senior leadership/on Board• Transitional job programmes/employees reskilled (#)• Retention targets and objectives• Educational training provided (# students, # hours)• Partnerships with educational establishments (#)• Evidence of intentional, ongoing, and meaningful engagement withworkforce (# successful consultations with workers)• % workforce covered under collective bargaining arrangements• Grievance mechanism (# incidents / # successfully resolved)• Supply/value chain engagements (#)

Accessibility and affordabilityof products and services

Example KPIs
• % goods/services targeting underserved segments• # consumers benefiting from affordability programmes and plans• Local/regionally calibrated assessment of affordability for essential/basic
goods or services (% average GDP per capita)• Evidence of intentional, ongoing, and meaningful engagement with
consumers (# successful consultations with consumers)

Livelihood enhancement andsocial justice and regions,communities and individuals,
including marginalised andunderserved groups

Example KPIs
• School/educational enrolment (# students)• Goods/services provided to underserved segments (i.e., women/minorities) ($m)
• Gender / ethnicity pay gap (%)• Workdays lost due to injuries/accidents/illness (#)• Reported incidents of discrimination (#)• Incidents of violations involving rights of Indigenous peoples (#)• Local employees in total workforce (%)• Decent jobs created (#)• Employees reskilled (#)• Employee stock ownership plans

Biodiversity and natural
capital – socio-economic
effects

Example KPIs
• Area restored or protected (km2)• Compensatory measures in place (#) or evidence of displacement avoided• Compensation paid to affected groups ($) or evidence of livelihood
restoration programmes effectively implemented• Use of nature based solutions in design and offsetting

38 | Just Transition Criteria: How to align investments with a just transition

Element 3: Increase community voice
Social dialogue andstakeholder engagement
through a participatory voice
and inclusion in decision
making for those affected
and those frequently
excluded and/or marginalised,
including communities
and people

Example KPIs
• Evidence of intentional, ongoing, and meaningful engagement withstakeholder groups (# successful consultations)• Objectives on social dialogue and stakeholder engagement within thecommunity• Stakeholder representation on board and/or advisory group of company
or project, or other relevant mechanisms such as grievance, community
development and/or indigenous community committees• Stakeholder meetings at early project development phase (#)• Evidence of involvement in affected communities involvement in capital,
product/service design, decision making and deployment• Staff engagement initiatives/surveys and evidence of resulting actions
taken (for example case studies)• Expenditure on locally sourced goods/services ($)• Pulse consumer / community surveys• Communications with impacted communities (#)• Feedback data throughout lifecycle of investment• Participation and co-determination rights, including complaints mechanisms• Compensation arrangements for rebuilding livelihoods• Representatives in decision making conversations (#)• Community ownership schemes• Use of funding instruments that provide returns to assets owned by or on
behalf of a community

www.impactinvest.org.uk | 39

III. Asset class specific guidance
The Just Transition Criteria are designed to be useable across asset classes
and strategies. This appendix provides high-level guidance on integrationof the Criteria in major asset classes, based on input from leading industry
participants. As part of the Just Transition Finance Challenge, we aim todevelop more specific guidance for application of the Criteria, including
other types of investments or strategies (e.g., real assets such as farmland,
timber and commodities) where good practice on the application of the justtransition approach is emerging.

This asset class guidance iscomplemented by an evolving
portal of case studies of justtransition-aligned financial
products available on theInstitute’s website.

Listed asset classes
Equities
Ambition• Universal; no additional specificity

Investment strategy• Clear focus on how the investment strategy seeks to deliver on the stated ambition through targeted investments.
• Use of specialised screening tools such as Paris Aligned Benchmarks to identify investment universe• Description of manager methodology for avoiding negative impacts and assessing positive contribution (i.e.,revenue mapping, operating/capital expenditure)

Outcomes• Include an explicit assessment of community engagement with respect to needs assessment, supply-chain
considerations and how these have been met

Structure• Pricing linked to delivery of environmental and social outcomes as well as expected financial returns

Governance• For global/regional strategies, the selection of a representative voice will contribute a relevant perspective but
cannot be expected to represent all relevant communities

Operations• The manager pursues stewardship in its role as shareholder, including the use of voting, particularly in the case ofsignificant minority or majority holdings

40 | Just Transition Criteria: How to align investments with a just transition

Corporate / Sovereign / Supranational bonds(Note: Non-labelled sovereign and supranational bonds are not in scope for the Criteria)
Ambition• Universal; no additional specificity

Investment strategy• In the case of corporate labelled bonds, includes both project-specific due diligence as well as environmental, socialand community assessment of the issuer• For non-labelled corporate bonds, the above should be done at issuer-level• Consideration of the:- Mix of developed and emerging markets bonds, targeting specific issuers, considering average portfolio rating,
reputation etc.
- Usage of different labelled bonds/use of proceeds bonds across different standards (e.g., International CapitalMarket Association (ICMA))- Managers may consider an issuer’s position on global treaties/conventions i.e., Paris Agreement, based onnational policies, targets or Nationally Defined Contributions

Outcomes• Framework includes an assessment of underlying use of proceeds and issuer

Structure• Vehicle duration, depending on the targeted underlying bond maturities, liquidity etc.
• Pricing linked to delivery of environmental and social outcomes as well as expected financial returns

Governance• For global/regional strategies, the selection of a representative voice will contribute a relevant perspective but
cannot be expected to represent all relevant communities

Operations• Use of proceeds/issuers are scrutinised not only at time of disbursement but over the life of the vehicle

www.impactinvest.org.uk | 41

Unlisted/Private asset classes
Private Equity

Private Debt

Ambition• Universal; no additional specificity

Ambition• Universal; no additional specificity

Investment strategy• The investment strategy ensures accessibility andaffordability of equity terms and fair investmentvaluations• The manager considers through its investment
selection, the opportunity to build in continuity of the
Elements upon exit of the investment

Investment strategy• The investment strategy ensures that debt servicing(interest rate, repayment structure etc.) is fair andnot overly burdensome, leading to availability, accessand affordability of credit This should also include
consideration of local market building and attracting
other investors.

• Consideration of the:• Consideration of the:- Type of equity (growth, VC)- Type of debt (senior, subordinated, mezzanine)- Profile and type of target investees (including
growth, maturity)- Amount, predictability and stability of expectedcashflow- Sector considerations (maturity, risk profile)- Security provided- Exit strategy- Profile and type of target investees (including
cashflow profile)

Outcomes• Include an explicit assessment of community
engagement with respect to needs assessment,
supply-chain considerations and how these havebeen met
Structure• Pricing linked to delivery of environmental and social
outcomes as well as expected financial returns- Sector considerations (maturity, risk profile)
Outcomes• Universal; no additional specificity
Structure• Consideration of the:- Vehicle life, capping underlying loan maturities- Investor regulatory requirements e.g., Solvency II
and the impacts of ratings

Governance• The manager pursues stewardship in its role asshareholder, including the use of voting, particularly inthe case of significant minority or majority holdings- Investor yields, driving accessible and affordable
terms to investees

Operations• The manager pursues stewardship in its role asshareholder, including the use of voting, particularly inthe case of significant minority or majority holdings- Local currency loans, de-risking loans for investees- Interest rates linked to outcomes delivery (e.g.,
possible rate reduction to the underlying investees
based on environmental and social outcomes)

Governance• Universal; no additional specificity
Operations• The manager pursues stewardship in its role as
bondholder, such as undertakings to increase
services to underserved communities or decrease
emissions footprint

42 | Just Transition Criteria: How to align investments with a just transition

Real Estate
Ambition• Projects include a clear articulation of local community aspects, and, ideally, the local supply chain• Clarity is provided on the targeted socio-economic population segment, depending on the project type, for example,
workers, consumers, or tenants• Local needs assessment is integrated into each project due diligence/design and procurement processes include
local community considerations

Investment strategy• Clarity is provided on the impacted groups of the project, both short term (construction) and long term (operation),
due to the long-term nature of projects• The inclusion of green aspects is specific, including, for example, materials, water usage or energy efficiency,
including the supply chain where possible. Green building certifications may be used where appropriate• The investment strategy is clear on the local market gaps and needs (for example, housing) and how the targeted
real estate investments support the closing of a gap• Consideration of the:- Type of instrument (equity, debt (senior, subordinated, mezzanine))- Profile and type of target projects- Sub-sector considerations (maturity, risk profile, tenants, and leases)- Inflation protection- Exit strategy (in the case of equity investment)

Outcomes• Environmental considerations (e.g. energy efficiency up to recent standards)• Specific focus on the targeted demographic group (tenants, workers, consumers etc.) including, where relevant,underserved or marginalised clients or consumers• Explicit assessment of community engagement with respect to needs assessment, procurement, and supply-chain
considerations

Governance• Effective governance structures and policies are particularly important given association of many projects withlocal/government entities• Governance setup includes active community and stakeholder engagement (which is traditionally built into theplanning process) ensuring community relevance and support as well as feedback and local recommendations

Operations• The manager pursues stewardship (depending on investment instrument)www.impactinvest.org.uk | 43

Infrastructure / Project finance
Ambition• Projects include a clear articulation of local community aspects, and, ideally, the local supply chain• Clarity is provided on the targeted socio-economic population segment, depending on the project type, for example,
workers, consumers, or tenants• Local needs assessment is integrated into each project due diligence/design and procurement processes include
local community considerations

Investment strategy• Clarity is provided on the impacted groups of the project, both short term (construction) and long term (operation),
due to the long-term nature of projects.
• The inclusion of green aspects is specific, including, for example, materials, water usage or energy efficiency,
including the supply chain where possible; where relevant, an in-depth environmental assessment (EIA) is
conducted.
• The investment strategy ensures that debt servicing (interest rate, repayment structure etc.) is fair and not overly
burdensome, leading to availability, access, and affordability of credit. This should also include consideration of local
market building and attracting other investors.
• Consideration of the:- Type of instrument (equity, debt (senior, subordinated, mezzanine))- Type of strategy (core, core+ etc.)- Profile and type of target projects (including contractor and other counterparties (such as offtakes))- Sub-sector considerations (maturity, risk profile)- Exit strategy (in the case of equity investment)

Outcomes• Include an explicit assessment of community engagement with respect to needs assessment, procurement, andsupply-chain considerations

Structure• Vehicle-level return expectations, driving underlying terms and access/affordability of the project• Vehicle life and related timeframe considerations (development and operational periods)• Structure considers the inclusion of community support and engagement given the essential services nature ofmany infrastructure projects and direct impact on local communities

Governance• Effective governance structures and policies are particularly important given association of many projects withlocal/government entities• Governance setup includes active community and stakeholder engagement (which is traditionally built into theplanning process) ensuring community relevance and support as well as feedback and local recommendations

Operations• The manager pursues stewardship (depending on investment instrument)

44 | Just Transition Criteria: How to align investments with a just transition

IV. Mapping of Just Transition Criteria to major
sustainability regimes (UK SDR and EU SFDR)
Mapping to FCA SDR
The below table provides an indicative mapping of the alignment between the requirements of the Just Transition
Criteria and those of the UK Financial Conduct Authority’s proposed Sustainable Disclosure Requirements (SDR),
based on the latest publicly available information (contained in FCA Consultation Paper 22/20) as of May 2023.

Degree of alignment
Weak

Moderate

StrongCriterion 1: There is a product-level commitment to the three Just Transition Elements
FCA proposed labelling regime
FCA general criteria(apply to all labels)

Sustainable Improver

Sustainable Focus

Sustainable Impact

P110: Firm must ensure theproduct’s sustainability
objective has a plausible,
purposeful, and credible
link to an environmental
and/or social outcome

P1: Sustainability
objective aligns withrequirements and invests
in assets that have thepotential to become moreenvironmentally and/or
socially sustainable overtime

P1: Sustainability objective
states that >70% ofassets in product meetcredible standard forenvironment or social
sustainability, or align withan environmental or social
theme

P1: [Product-level]sustainability objective
must be to achieve a
positive, measurable realworld environmental and/or social outcome
P2: Firm must specify
theory of change

Commentary• FCA labels focus on “environmental” and “social sustainability” only; no mention of “community voice” as a key
element• FCA definition of “sustainability objective” is different for Impact label vs Improver and Focus• Impact label requires theory of change

10

P1, P2, P3 correspond to principles 1,2 and 3 out of 5 put forward in the FCA CP22/20.

www.impactinvest.org.uk | 45

Criterion 2: Each investment within the product is assessed to avoid harm to any of the three
Elements
FCA proposed labelling regime
FCA general criteria(apply to all labels)

Sustainable Improver

Sustainable Focus

Sustainable Impact

Firm must identify any ofa product’s investmentsthat a reasonable investor
may argue conflictwith the sustainability
objective, investment
policy and/or productstrategy

No criteria specified

No criteria specified

No criteria specified

Commentary• FCA criteria states all labels should identify contentious investments that may produce negative impacts• Community voice not strictly required

Criterion 3: Through its investments, the product makes a positive aggregate contribution to all three
Elements and, over time, each underlying investment contributes to all three Elements
FCA proposed labelling regime
FCA general criteria(apply to all labels)

Sustainable Improver

Sustainable Focus

Sustainable Impact

P2: Firm must develop andimplement investment
policy and strategyaligned with productsustainability objective

P2: Firm must ensure
product is invested in
assets that have thepotential to become moreenvironmentally and/or
socially sustainable overtime

P2: Firms must ensure
at least 70% of product’s
assets meet standard forenvironmental or social
sustainability

P2: Firm must specify
robust method to measureand demonstrate thatits investment activities
have had a positiveenvironmental and/or social sustainability
impactP2: Firm must haveappropriately designed
policies and procedures
to determine, ensure,monitor, evaluate andreport environmental and/or social sustainability
profile of assets toinvestors on an ongoingbasis

P3: Long-termsustainability profile ofa product’s underlying
assets should be taken
into consideration
projected out over a
period greater than 1 year

P3: Firm ensures that their
KPI metrics demonstrateongoing alignment of
product assets with target
environmental and/or
social sustainability profile

P3: Firms apply enhanced
impact measurement
and reporting based on
industry best practiceP3: Firm must use specific
KPIs and measure productperformanceCommentary• FCA requires firms to disclose detailed information on products and underlying assets (investments)• However, FCA definition of “positive contribution” is less stringent than Just Transition Criteria (across all labels).
Sustainable impact can be environmental or social. Community voice not strictly required• FCA criteria state that environmental and/or social sustainability profiles should be considered at the asset level46 | Just Transition Criteria: How to align investments with a just transition

Mapping to EU SFDR
The below table provides an indicative mapping of the alignment between the requirements of the Just Transition
Criteria and those of the European Union’s Sustainable Finance Disclosure Regulation (SFDR), based on the latest
publicly available information (EU Regulation 2019/2088 and subsequent clarifications) as of May 2023.

Degree of alignment
Weak

Moderate

StrongCriterion 1: There is a product-level commitment to the three Just Transition Elements
EU SFDR classification
Article 6

Article 8

Article 9

Article 6 is a default classificationand covers products that do not
integrate ESG considerations into
the investment decision-making
process

Financial products promoting
environmental and/or social
characteristics must disclose:

Financial products promoting
environmental and/or social
characteristics must disclose:• Information on how thosecharacteristics are met• Information on how the designatedindex is aligned with that objective• If an index is used as a reference
benchmark, information onwhether and how this index
is consistent with thosecharacteristics• An explanation as to why and how
the designated index aligned withthat objective differs from a broad
market index; OR• If carbon emissions are theirobjective, how they will achieve
the objectives of the Paris
Agreement

Commentary• Sustainable investment is not the objective of Article 8 products, which must only promote investments or projects
with positive environmental and social characteristics11. Products may be designated the category without investingin any sustainable investments
e.g. by adopting mandatory Principal Adverse Indicators (PAIs).
• Article 9 products have an explicit objective of sustainable investment, complying with the ‘do no significant harm’principle in relation to the EU Taxonomy objectives12. There is a focus on the whole portfolio being sustainable(outside of practical considerations e.g., hedging)• Just transition labelled products would likely fall under Article 9. However, requirements for the just transition label
are substantially more stringent than those to classify as Article 9, so not all Article 9 products would qualify as justtransition. Article 9 funds also lack an explicit requirement to cover the community voice Element.

11

Characteristics can be measured against mandatory adverse indicators e.g., greenhouse gas emissions, biodiversity, social and employee matters

Climate change mitigation, Climate change adaptation, Sustainable use and protection of water & marine resources, Transition to a circular economy, Pollution prevention & control,
Protection & restoration of biodiversity & ecosystem12www.impactinvest.org.uk | 47

Criterion 2: Each investment within the product is assessed to avoid harm to any of the three
Elements
EU SFDR classification
Article 6

Article 8 and 9

Article 6 is a default classificationand covers products that do not
integrate ESG considerations into
the investment decision-making
process

Per Articles 7 and 11, Article 8/9 firms should disclose:• A clear and reasoned explanation of whether a financial product considers
principal adverse impacts on sustainability factors and, if so, how• Information on principal adverse impacts on sustainability factors (if there
are any)

Criterion 3: Through its investments, the product makes a positive aggregate contribution to all three
Elements and, over time, each underlying investment contributes to all three Elements
EU SFDR classification
Article 6

Article 8

Article 9

Article 6 is a default classificationand covers products that do not
integrate ESG considerations into
the investment decision-making
process

Article 8 classification requirements
aren’t particularly stringent, only
requiring that the fund promotes
environmental/social characteristics

Whole portfolio should be made up
of sustainable investments (outsideof hedging/liquidity requirements),
with the additional requirementthat investments are exclusively
classified as sustainable

Source: Oliver Wyman research.

www.impactinvest.org.uk© 2023 Impact Investing Institute. All rights reserved.