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Investing in a just transition:a framework for investors
December 2023

abrdn.com

Contents
Part 1 - Why a just transition matters for investors
Introduction4
Why do we need a just transition?

6

The role of governments in incentivising a just transition

9

Investor initiatives to support a just transition

12

A four-step framework for investor action on the just transition

14

The challenges of achieving a just transition

22

What’s next?

22

Part 2 - Key impacted stakeholder groups
01. Workers24
How will the transition to net zero affect workers?

24

Why does this matter to investors?

25

What actions can investors take?

26

02. Suppliers28
How will the transition to net zero affect suppliers?

28

Why does this matter for investors?

29

What actions can investors take?

29

03.Communities30
How will the transition to net zero affect communities?

30

Why does this matter to investors?

31

What actions can investors take?

33

04. Consumers36
How will the transition to net zero affect consumers?

36

Why does this matter for investors?

37

What actions can investors take?

38

Conclusion39

Authors
Eva Cairns
Head of Sustainability Insights& Climate Strategy

Nancy Hardie
Sustainability Analyst

Contributors
Elizabeth Chiweshenga
Senior Sustainability Manager

Ziggy You
Former Sustainability Analyst

Investing in a just transition: a framework for investors

2

Part 1

Why a just transition
matters for investors

Investing in a just transition: a framework for investors

3

Introduction

The “E” (Environmental) and the “S” (Social) in ESG are closely intertwined. The goal of net
zero by 2050 cannot be achieved at the detriment of people and societies, given a core aimof addressing environmental issues is to improve people’s lives. We must strive for a “just”
and orderly transition to a low carbon society that considers the impact on communities,
workers and consumers. Not doing so creates considerable risks for businesses, countries
and therefore matters to investors.
What is the just transition?

How does this impact investors?

The International Labour Organization (ILO) provided thisdefinition in 2015: ‘A just transition means greening the
economy in a way that is as fair and inclusive as possible toeveryone concerned, creating decent work opportunities
and leaving no one behind’. The goal of a just transition
is to see everyone sharing the benefits of transitioning tozero-carbon, including workers, suppliers, communities
and consumers while ensuring access to reliable andaffordable energy. In practice, this means avoiding unjust
harm or exacerbating inequalities and minimising or
remedying any adverse impacts on people resulting fromthe energy transition.

Governments and businesses both have crucial roles toplay in a just transition. Governments can enact regulationand provide financial support to affected people andregions and manage wider concerns around issues suchas energy security. However, it is clear that governments
are not doing enough in this space, with less than half ofthe countries that updated their Nationally Determined
Contributions (NDCs) by October 2022 even mentioninga "just transition". Governments face a complex challenge
and needs will vary greatly from region to region.

The just transition is a priority theme for the United Nations(UN) climate conference COP28 taking place in Dubai
in December 2023. This is where the outputs of thefirst United Nations Framework Convention on Climate
Change (UNFCCC) Global Stocktake will be discussed toassess progress against the goals of the Paris Agreement.
The stocktake synthesis report published in September
2023 highlights that 'to achieve rapid reductions inemissions, the phase-out of unabated fossil fuels is
required and should be undertaken responsibly, including
through socially inclusive phase-out plans developed aspart of just transitions.’I

Investing in a just transition: a framework for investors

Companies must consider their social impact and take
into account the voices of their workers, the communities
they operate in, the sustainability of their suppliers, andtheir impact on consumers. This will not only benefit thesocieties they operate in, but also mitigate the financial
risks that come with neglecting social issues.
For the financial industry, not considering social impacts
when investing in green initiatives can result in unintended
higher costs for portfolio companies, reputational risks
and ultimately financial risks. To understand and mitigate
these risks, investors can engage with companies on justtransition risks and opportunities, as well as specificallyinvest in businesses that align to just transition principles.

4

Investors should also be mindful of the varying energy
security needs of different economies, and actively workwith investee companies to transition in an orderly manner.
The purpose of this paper is to bring to life why ajust transition matters for investors and to provide
a practical investor framework that highlights bestpractice approaches to identify leaders and laggards
and engagement questions. It focuses on the roleof governments and four key groups that need tobe considered: workers, communities, suppliers,
and consumers.

"The transition towards net
zero is clearly underway.
It is part of our fiduciary
duty to clients to consider
the risks that ‘unjust’transitions pose to ourinvestments."
Amanda Young
Chief Sustainability Officer

Our commitment to a just transition
abrdn signed the Principles for Responsible
Investment (PRI) just transition statement1 in2018 demonstrating our support for the need toconsider social impacts of the energy transition.
We joined the ‘Financing a just Transition
Alliance’ coordinated by the Grantham Instituteof the London School of Economics in 2020 andhave undertaken research into material justtransition issues across regions and sectors suchas the change in workforce and skills needed
due to the electrification of vehicles.
We actively engage on material just transition
issues, examples include with the autos
sector on how they manage job losses anddevelop their workforce's skillset, and also withrenewables developers on how they engage
with communities on securing land rights, forexample in India. These are captured as casestudies in this paper.
Just transition considerations are critical forthe mining sector and abrdn has joined the
Global Investor Commission on Mining 2030.
The Commission aims to ensure that the mining
industry maintains a clear social license tooperate, meets society’s needs responsibly
without fostering conflict or corruption, operates
within planetary boundaries and contributes
positively to social development and theenvironment.
Next, we want to expand our approach toconsider emerging data and frameworks andhow they can be embedded into the investment
process and the development of just transitionaligned products. This is expected to form an
important part of our climate transition plan.

Investing in a just transition: a framework for investors

5

Why do we need ajust transition?

Why do we need a just transition?
The need for a just transition to combat climate change
was referenced in the 2015 Paris Agreement andreinvigorated in 2021 with the Just Transition Declaration
launched at the UN Climate Change Conference of
the Parties in Glasgow (COP26) which was signed by
17 governments and the European Commission.II It isneeded to ensure that the energy transition delivers
secure, affordable and clean energy, benefitting all
impacted stakeholders and managing adverse impacts
on people that could destabilise whole regions. In thewords of Nick Robins, just transition expert at the London
School of Economics (LSE), for investors "This is about
actually applying the things you've already committed toin your S pillar" and "how important it is to think of net zerothrough a people lens."2

A just transition helps progress towards several of the
UN Sustainable Development Goals (SDGs). At its core, it
supports decent work and economic growth (SDG8), andclimate action (SDG13), but is also directly connected toaffordable and clean energy (SDG 7), reduced inequalities(SDG10), no poverty (SDG1) and industry, innovation andinfrastructure (SDG 9).
There is a particular need to support the financing of ajust transition in developing countries that are often morereliant on fossil fuels and need to fuel their growth in aclean and affordable way. This was also recognised at
COP26 where the first Just Energy Transition Partnership(JETP) was launched. This is a financing mechanism
whereby developed countries come together to help highcarbon emitting countries which are heavily dependent on
coal, transition to a low carbon economy in a just manner.III

Figure 1: The just transition is closely intertwined with the Sustainable Development Goals

Critical linkages
Core goals

Wider foundations

1

No poverty

2

Good health and wellbeing

3

Zero hunger

4

Quality education

5

Gender equality

6

Clean water and sanitation

7

Affordable and clean energy

8

Decent work and economic growth9

Industry, innovation and infrastructure

10

Reduced inequalities

11

Sustainable cities and communities

12

Responsible consumption and production

13

Climate action

14

Life below water

15

Life on land

16

Peace and justice strong institutions

17

Partnerships for the goals

Immediate connections

Source: London School of Economics Grantham Institute, Climate change and the just transition - A guide for investor action, 2018.

Investing in a just transition: a framework for investors

6

Key groups impacted by the energy
transition
For companies, workforce impacts are often the starting
point for just transition considerations. The structuralshifts needed to move to clean energy will inevitably
bring changes in the labour market, resulting in some
jobs becoming obsolete and others being newly created.
However, the concept of a just transition needs to be muchwider than that. For example, infrastructure requirements
affect communities already occupying these areas;
increasing demand for transition minerals may add
pressure on already vulnerable supply chain workers;
and uncertainty around energy supplies can have asignificant impact on consumers, particularly those living
in or close to poverty. In addition, the policy landscapeprovides the foundations that drive just transition risks andopportunities for firms.

Figure 2: Stakeholder groups in the just transitionIV

Governments
Engaging with policy makers who provide the foundational policies and finance for enabling a just transition

Workers

Suppliers

Communities

Consumers

Involving workers
by anticipating
employment shifts,
respecting rights
at work, ensuring
dialogue, developing
skills, protecting
health and safety
and providing social
protection, including
pensions and benefits.

Supporting
suppliers in taking
account of thesocial impact on
the path to net
zero, strengthening
local supply chains,applying labour,
human rights andenvironmental due
diligence along the
supply chain.

Understanding
the spillover effects
for communities,
respecting rights
around impacts andinvolvement, focusing
on vulnerability,
enabling innovations
such as community
energy.

Prioritising
implications for
consumers withinadequate accessto sustainable goods
and services including
energy, removing
barriers to consumers
to support thetransition, including
through financial
services.

Source: Making transition plans just (2022) Grantham Research Institute on climate change and the environment.

Investing in a just transition: a framework for investors

7

Risks arising from an unjust transition
Consciously addressing the social implications of theenergy transition can help society prepare for a strong,resilient zero-carbon economy by ensuring that thenecessary skills, capacities and social institutions
are in place to support it. Not taking into accountsocial factors significantly raises the risk of an “unjust”

transition. For example, if energy grids and systems are
not transformed in a technologically sound manner,then energy security and reliable energy supplies could be
jeopardised. Table 1 provides examples of potential risks
and case studies associated with an unjust transition.

Table 1: Examples of risks from an ‘unjust’ transition
Stakeholder

Workers and communities

Supply chain workers

Communities

Consumers

Social risk example

Stranded workers leading tostranded communities.

Labour abuses.

Rising food prices,malnutrition, hunger.

Energy poverty.

Cause

Lack of support to retrain or
relocate employees into new
sectors, may leave many
behind. Where this amounts
to whole communities,
the economic and social
impacts, including higher
unemployment, increased
crime, etc. can be significant.

Increasing demand fortransition minerals sourced
from vulnerable workers
or conflict regions may
exacerbate or create newlabour abuses.

If the biofuel market
proves more lucrative thanfood, incentives for foodproduction may disintegrate,
resulting in shortfalls.

Green taxes on fueldisproportionately affects
lower-income and/or
working-class people.

Real world example

UK: In the 1970s, the UK
coal industry began a rapid
decline. In communities
where coal was the dominantsource of employment, theeconomic and social costs
were significant, leading tohigh levels of deprivation,
unemployment and a lack of
viable work or income options
that persisted for multiple
generations.

The Democratic Republicof Congo (DRC): Cobalt
is a critical component inbatteries, the majority ofwhich comes from the DRC.
Worker exploitation andabuses in DRC cobalt mines
has been well-documented
by multiple NGOs.

Mexico: In 2007, as corn yields
were increasingly diverted
from food to response to risingdemand for environmentallyfriendly biofuels in the US, theprice of tortillas rose 400%.
Citizens took to the streets inprotest. The President at thetime had to respond quickly
to lower the price (thoughstill higher than previously)
to avoid large-scalemalnutrition.

France: In 2018, a green tax
on fuel was announced in
France, setting off nearly amonth of protest by 300,000
people across the country,
known as the ‘yellow vest’
movement. The largely
working class protesters
argued that their income wastoo high to get social welfare
but too low to afford theincreased fuel prices. The costof the measures taken by thegovernment in response to
the demands of the yellow
vests was calculated to be€17 billion.

Businesses and investors have an interest in mitigating risks from an unjust transition and can also capitalise on theopportunities that a just transition brings. Furthermore, the significant influence of companies on the society we live inmakes their participation in a just transition essential. It is critical for investors to understand these risks and engage withcompanies to manage them and for governments to set the right policy environment to incentivise a just transition.

Investing in a just transition: a framework for investors

8The role of governments inincentivising a just transition

The energy transition is differentiated by
the need for rapid, large-scale disruption
and policy action, which just transition
proponents argue are “beyond the capacityof existing markets and institutions to ensure
fair outcomes for workers, communities
and consumers.”V
Governments therefore have a primary role in achieving ajust transition with dual responsibilities for driving climate
action and ensuring appropriate social protections.
Governments have a whole economy perspective andcontrol many of the tools that can support a just transition,e.g., fiscal measures, subsidies, trade agreements,
infrastructure, regulation, education and social security.
Out of the 170 countries that updated their Nationally
Determined Contribution (NDCs) as at October 2022,
only 65 (38%) reference the just transition.VI
Some policymakers have implemented support schemes
to foster a just transition. In the EU, for example, the Just
Transition Mechanism (JTM) provides support to regions
most affected by the transition and is intended to benefit
people, companies, and member states.VII India has
published a just transition finance roadmap to identify
priority actions for financial institutions to support climate
action that also helps deliver social benefits in India.
Equally, the Monetary Authority of Singapore (MAS) is
setting out clear guidance for financial institutions ontransition planning, highlight that particularly in relation
to a manged coal phase out in Asia, a successful transition‘must ensure that measures are in place to mitigate
potential harm to livelihoods and communities’. VIII
Figure 3 provides some examples of actions taken
by governments to achieve a more just transition.
The success of these efforts has varied and is often driven
by the political landscape. Mexico for example, despite
government efforts to increase engagement with local
communities and indigenous people on renewables
projects, still faces significant criticism for lack of humanrights protections.IX

Investing in a just transition: a framework for investors

9

Figure 3: Examples of government action on a just transition (non-exhaustive)X

7

4
5

3

1

2

12

8

6

10

9

11

1. Appalachia, USA:
Federal funding
to communities
through local andregional partners
to address
economic andlabour dislocations
caused by theenergy transition.

2. Morocco: Redirect
fossil fuel subsides
to benefit poor andrural communities.

3. Spain: Regional
action plans
to support
economic activity,
diversification andemployment inareas at risk fromthe phase-out
of coal.

4. Scotland: Grants
for oil & gas
workers toundergo training
and reskilling infields with strong
employment
potential.

5. EU: Financial
and technicalassistance tomember statesthat develop
national justtransition plans.

6. Philippines:
Financialincentives forgreen job creation;pilot with the ILO
Green Initiative.

7. Canada: Worker
transition centres,
infrastructure
fund to enhance
local economic
diversificationin affected
communities andfinancial support
for coal workers.

8. Mexico: Seriesof policies andlaws to improvesocial impact
assessment
and community
consultationon large-scale
renewable
projects.

9. Uruguay: Plant
closure processinclude tradeunion dialogue;
skills development
strategy for green
jobs; pilot with
the ILO Green
Initiative.

10. Ghana: Reducefossil fuelsubsidies andreform fossil fuelpricing.

11. South Africa:
Extended, criticalengagement withjust transition,
including a rangeof assessmentssocial dialogues
and policies.

12. Egypt: Redirect
fossil fuelsubsidies toaddress rising
unemployment
and slowing
growth.

Source: World Resources Institute (2022) Resources. Robins, N. and Rydge, J. (2019) Inevitable Policy Response: Why a just transition is crucial for effective climate action(see endnote for more information).

Just Energy Transition Partnerships
There is a critical need to provide finance to enable a just transition in countries heavily reliant on coal. Given fossil
fuel producing countries can veto agreements in UN climate talks, JETPs are essential to make progress more
quickly.3 The first JETP was established in 2021 when the UK, US, France, Germany, and the EU pledged 8.5bn US
dollars to help the just transition in South Africa. In 2022, a 5-year investment plan (JET IP) for the package wasapproved by the South African cabinet. Key areas of investment include electricity, new energy vehicles, gaseoushydrogen (GH2), and cross-cutting (investment in municipalities and development of skills).4
The second JETP was set up in 2022 to support Indonesia with $20bn of finance over 3-5 years. This JETP will help
expand Indonesia’s share of renewables in its power supply, reduce its reliance on coal, and reduce its power sector
emissions.5 However, the plan to retire coal has been halted, as the financing countries claim they are not ready tofund this aspect of the strategy.6 This brings to the fore the complexities in achieving just transition goals.

Investing in a just transition: a framework for investors

10

Government policy to foster a just transition
ILO sets out clear guidelines for governments highlighting nine policy areas to focus on to support a just transition(see Figure 4).
Figure 4: Nine policy areas of ILO’s just transition guidelines
Policy foundations

Employment rights

Macro-economic and growth policies

Skills development

Industrial and sectoral policies

Occupancy safety and healthEnterprise policies

Social protection

Active labour market policies

RightsSocial dialogue and tripartism

Source: International Labour Organisation (2015), Guidelines for a just transition towards environmentally sustainable economies and societies for all.

Sovereign just transition bonds
In addition to policy, governments can use sovereign bonds to raise finance for just transition initiatives.
The Grantham Research Institute highlights that “a sovereign just transition bond would bring together the classic
climate initiatives backed by green bonds and the human dimension of the transition underpinned by the moreembryonic field of social bonds.” The Institute refers to the ILO’s just transition guidelines to help governments findsuitable projects.
The issuance volume of sovereign green and sustainability bonds has risen drastically over the last few years.
The volume of green bonds has risen from $800m in 2016 to around $80bn in 20227. The first sustainability bonds
were issued in 2019 at a volume of $500m. This has risen to around $20bn in 2022.
The formulation of labelled bond frameworks provides sovereigns with an opportunity to articulate their approachto just transition. In Europe for example, France’s Caisse des Depots created a framework for its sustainable,
green, and social bonds which states that the transition to a low carbon economy “must be fair between all
citizens”.8Another example is Colombia specifying that social bond proceeds should help mitigate social problems
and/or generate positive social impacts for specific groups including among others vulnerable people, ethnic
groups, unemployed people and rural areas.
Investors should encourage the inclusion of just transition considerations into the frameworks. This should also help
asset owners and managers to ensure that their capital does not violate the principles of doing no significant harmthrough financing projects which could undermine the rights and interests of people and local communities.
Source: www.unpri.org/sovereign-debt/considering-climate-change-in-sovereign-debt/11894.article.

Investing in a just transition: a framework for investors

11

Investor initiatives tosupport a just transition

Action across the investment industry
is varied and still a developing area.
Many recognise that supporting a justtransition is needed but are not very specificabout what that entails.
Several investor groups and initiatives have stepped up
their activity in this space to help investors incorporate
just transition criteria into their thinking. The key initiatives
investors can lean on are:
1. London School of Economics Grantham Institute’s
Financing a Just Transition Alliance (FJTA, 2020):
The Grantham Institute provides leading researchon the just transition. The FJTA (of which abrdn is amember) Just Zero report (2021), for example, includes
a variety of case studies and investor perspectives ona just transition. The report highlights the importanceof financial institutions in a just transition and finds that
“Reallocating capital to achieve net zero greenhousegas emissions can also drive more and better-quality
jobs, revitalise communities and reduce inequality in theUK, linking the just transition and levelling-up agendas.”XII
The report builds on the 2018 guide for investor action on
the just transition.
The Grantham Institute also published guidance on
Making transition plans just in 2022. It recommends
that investors incorporate the following three
aspects in their transition plans in relation to thefour stakeholder groups:. Anticipate, assess and address the social risks of
the just transition.
. Identify and enable the social opportunities of
the transition.
. Ensure meaningful dialogue and participation in
net zero planning.

In October 2023, the Institute published guidance onembedding the just transition in government policy which isreferenced further below.

Investing in a just transition: a framework for investors

122. The World Benchmarking Alliance Just Transition
Assessment (2021): evaluates both companies’alignments to Paris Agreement goals and how they
address social issues. In particular, they consider
six just transition related indicators including: social
dialogue and stakeholder engagement, planning, green
and decent job creation, retaining and re/upskilling,social protection and impact management andpolicy advocacy.
The assessment had 5 key findings: XIII. The vast majority of high-emitting companies are
failing to demonstrate efforts towards a just transition.
. People most at risk are being left out of decisions that
affect their future.
. Companies must commit to reskilling workers or riska stranded workforce.
. Businesses are still not using their influence to protect
people, manage social impacts and advocate for ajust transition.

. A just transition needs to be underpinned bycompanies' respect for human rights.

3. Climate Action 100+ (CA100+) Net Zero Benchmark Just
Transition indicator (2022), assessed by the Transition
Pathway Initiative (TPI) Centre and FTSE Russell:
CA100+ is the largest global engagement initiative on
climate change and a CA100+ net zero benchmark has
been developed to assess the largest global emittersagainst 10 indicators. A beta just transition indicator
was developed in 2022 and re-designed in 2023
based on ability to assess progress and available data.
According to the most recent findings (2023), 33% offirms covered by the benchmark are partially aligned
to the just transition criterion (with the remaining 67%
not aligned), and only 3% have developed just transition
plans in consultation with stakeholders.XIV
4. Impact Investing Institute (III) Just Transition Criteria(2023): a practical framework for fund managers
who want to invest in the just transition and align theirproducts with just transition principles. The III highlights
three core elements of a just transition, defined by the
G7 Impact Taskforce that provide a good foundation
for assessing just transition alignment.

Table 2: G7 Impact Taskforce just transition elements
Advance climate andenvironmental action
Moving the world to net zerocan be achieved through twocomplementary investmentareas: climate mitigation or
reduction action, and carbon
removal. To reduce net emissions
to zero, focus is needed on both.
Other investment areas that are
critical to the achievement of thisElement include those that protect
and restore natural capital, including
biodiversity, and those that support
adaptation and resilience to theeffects of climate change.

Improve socio-economic
distribution and equity
Positive climate and environmental
outcomes must be complemented
with those that support the needsof people. Investments should
not entrench or exacerbate
existing burdens for vulnerable
or marginalised groups. Products
should be accessible and local
communities should be included infair opportunities and jobs. They mustalso ensure that the goods andservices they produce are affordable,
and that costs and profits are evenly
distributed, globally and regionally.

Increase community
voice
Community voice should incorporate
components that help to improvesocial dialogue and agency, fromlocal engagement to participationin decision making. Financial actors
should ensure stakeholders areheard, and that their views andneeds 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 frommarginalised and indigenous
communities.XV

Source: Just-Transition-Criteria.pdf (impactinvest.org.uk).

Investing in a just transition: a framework for investors

13

A four-step framework for investor
action on the just transition

The just transition is very broad in scope and it can bedifficult to know where to start when evaluating a country's
or company’s progress in this space. We propose thatinvestors start incorporating just transition considerations
by using a four-step framework:

01

Step 1: Investment research integration –Assess the most material just transition
risks and opportunities to identify leadersand laggards across sectors and regions.

02

Step 2: Corporate engagement – Engage
with companies on how they are
managing material just transition risks,bring in key stakeholders views andunderstand the social impact on them.

03

Step 3: Capital allocation and productalignment – Allocate capital to help financea just transition and enhance sustainabilityfocused products by assessing justtransition alignment.

04

Step 4: Policy advocacy and sovereign
engagement – Be vocal about advocating
for policies that help foster a just transitionand engage with policymakers where
possible.

Step 1: Investment research integration
A core objective is to identify just transition leadersand laggards where there are material risks, andalso opportunities – at corporate and country level.
Frameworks such as CA100+’s Net Zero Benchmark and
the G7 Impact Taskforce’s just transition elements can act
as tools for investors to complement fundamental bottomup analysis and identify credible actions on a just transition.
Corporates
Investors can use the CA100+ net zero benchmark data
which assesses 170 of the highest emitting companies
against 10 climate indicators. Disclosure indicator 9 relates
to the just transition and the sub-indicators considered arehighlighted below: XVI

Investing in a just transition: a framework for investors

14

Table 3: Climate Action 100+ Net Zero Benchmark – Just transition indicator 9
Just transition sub-indicator (2023 version)

Alignment
Yes

9.1 Just Transition commitment
The company has committed to the principles of a
Just Transition.

PartialNo*1%

9.1a Commitment to a just transition
The company has committed to decarbonise in line withdefined Just Transition principles, recognising the social
impacts of its decarbonisation efforts.
9.1b Commitment to workers
The company has committed to retain, retrain, redeploy
and/or compensate workers affected by its decarbonisation
efforts.
9.1c Commitment to stakeholder consultation
The company has committed that new projects associatedwith its decarbonisation efforts are developed in consultation
with affected communities and seek their consent.

31%

69%

24%

76%

23%

77%

1%
0

99%
50

9.2 Just transition planning & monitoring
The company has disclosed how it is planning for andmonitoring progress towards a Just Transition.

1% 9%

90%

9.2a Just transition plan
The company has developed a Just Transition plan for how
it aims to support workers and communities negatively
affected by its decarbonisation efforts.

10%

90%

69%

76%

77%

100

99%

9.2b Stakeholder consultationThe company’s Just
Transition plan was developed in consultation with workers,
communities and other key stakeholders affected by its
decarbonisation efforts.

3%

97%

9.2c Just transition KPIsThe company discloses the quantified
24%
23%
Key Performance Indicators it uses to track its progress
1%
1%
towards the objectives of its Just Transition plan.

99%

31%

0

50

100

*total 101% due to rounding.
Source: Climate-Action-100-Net-Zero-Company-Benchmark-Framework-2.0..pdf (climateaction100.org).

Investing in a just transition: a framework for investors

15

The key findings of the 2023 assessment are:. Where there is a commitment, it appears to be focusedon workers. Only 24% of companies commit to aligningwith Just Transition Principles (9.1a) and 23% commit toretaining, retraining and re-deploying or compensating
workers impacted by decarbonisation efforts (9.1b). A small minority have a plan and measure success.
Only 10% disclose a just transition plan (9.2a) andonly two companies have KPIs in their plan (9.2c).

. Stakeholder engagement is a major gap. Only twocompanies have committed to consulting with andseeking consent of affected communities whendeveloping decarbonisation projects (9.1c). Only fivecompanies (3%) have developed their transition plans
in consultation with key stakeholders (9.2b).
There is clearly a lot of progress to be made on thisindicator, particularly when it comes to listening to thevoice of impacted stakeholders. Investors can use the2023 results as a baseline to measure progress against,
particularly for companies that score poorly which they
may want to engage with.

Case study:
A just transition leader
SSE, a UK utility, has developed a principles-based just transition strategy (see Figure 5). It is leadingby example in recognising the importance of a just transition to its business and implementing itin practice. But when considering the CA100+ net zero benchmark just transition assessment, SSE falls short on two
sub-indicators: 9.1c – a clear commitment to engaging communities to shape their plans and 9.2c, disclosing KPIs as
part of its just transition plan. This provides a useful steer for focus areas when engaging with SSE.
Figure 5: SSE’s 20 Principles for a Just Transition9
SSE's 20 principles for a just transition
Transitioning intoa net zero world

SSE's principles for good,green jobs

SSE's principles for building
and operating new assets

1. Guarantee fair anddecent work

5. Co-create withstakeholders

2. Attract and growtalent6. Factor-in wholesystem costs andbenefits

3. Value employee voice
4. Boost inclusion anddiversity

7. Make transparent
evidence-based
decisions
8. Advocate for fairness

5

Transitioning out of ahigh-carbon world

SSE's principles for building
and operating new assets

SSE's principles for people
in high-carbon jobs

SSE's principles forsupporting communities

9. Support competitivedomestic supply
chains

13. Re-purpose thermal
generators for a net
zero world

17. Deliver robust
stakeholder
consultation

10. Set social safeguards

14. Establish andmaintain trust

18. Form partnerships
across sectors

15. Provide forward
notice of change

19. Promote further
industrial
development

11. Share value with
communities
12. Implement
responsible
developer standards

16. Prioritise retraining
and redeployment

20. Respect and record
cultural heritage

Just Transition | SSE.

Investing in a just transition: a framework for investors

16

Sovereigns
There are many country-level indices that provide viewson environmental and social policies, but not manyreference the just transition specifically. One recently
developed tool that does is the Transition Pathway
Initiative's 'Assessing Sovereign Climate-related
Opportunities and Risks' (ASCOR) framework. It assesses
countries on climate change across three pillars –emissions pathways, climate policies and climate finance.
Importantly, the climate policies assessment includes a justtransition indicator (CP6) which considers four questions
for assessing country performance on the just transition:. Has the country ratified fundamental human, labour andindigenous rights conventions?
. Does the country have an inclusive and institutionalised
approach on just transition?
. Does the country have a green jobs strategy?
. Does the country integrate just transition into its
carbon pricing?

The first country-level results using this methodology are
expected in Q4 2023. More detail on the indicator andwhat good looks like is provided in Appendix 1.

Step 2: Corporate Engagement
Engagement is key to learn more about a company’s
operations and plans to facilitate a just transition. Table 4on the following page provides a set of engagement
questions across the four impacted stakeholder groups –workers, communities, suppliers and consumers and whata good response should include. This is an optional list to
select from, depending on the most material issues for theinvestee company.
But before diving into the stakeholder specific questions,
it is useful to understand the overarching approach to
governance, oversight and impact assessment on thejust transition.
A first conversation on the just transition should consider
three initial questions:. Do you have a just transition strategy to assess andmanage the social implications of your transition plans
and have you quantified the financial risks related tonegative social impacts?
. If so, how is this strategy implemented, overseen andhow is success measured?

. How do you bring in the voice of relevant stakeholders
that are impacted by your transition strategy such as
workers, communities and consumers?
Key sectors to begin with include energy, mining, autos,
and agriculture. We believe these will be some of themost affected sectors where the just transition will be amaterial issue.

Investing in a just transition: a framework for investors

17

Table 4: Just transition corporate engagement framework
Just transition engagement framework
Engagement questions

What a good answer should include

First discussion on just transition
1. Do you have a just transition strategy to assess & manage the social
implications of your transition plans, have you quantified the risks related
to negative social impacts?

1. The company can evidence that the assessment and quantification ofsocial impacts has been undertaken and is documented to make a clear
case for action based on the financial risks.

2. If so, how is this strategy implemented, overseen and how is successmeasured?

2. Evidence to show that there is Board/Exec level oversight withgovernance structures in place to make sure the strategy is implemented
and clarity on what success looks like including KPIs.

3. How do you bring in the voice of relevant stakeholders that are
impacted by your transition strategy such as workers, communities andconsumers?

3. Evidence that views from different stakeholders were actively sought
and incorporated i.e., decisions were made/changed based on the input,
but also feedback from stakeholders that they feel heard.

Workers
1. How do you manage the impact on the employees in your businessas a result of your transition strategy e.g., restructuring and reducing thenumber of workers, providing new opportunities to learn new skills andwork in green jobs?

1. The company has assessed job losses and the need for restructuring
and redundancies. It has a strategy to manage the impact on the businessand make sure workers are treated fairly. E.g., funding for reskilling/
upskilling programmes, provide opportunities in green jobs, voluntary
redundancies and early retirement packages. Working with unions to help
avoid strikes.

2. Have you consulted your employees in your climate transition plan andrestructuring process?

2. There is clear documented evidence of employees consulted in the
climate transition and restructuring plans. It must demonstrate that
employees have had significant input and that the company has acted on
the input.

3. Are there worker shortages within your supply-chain that can hinder
your transition plan. If so, what actions are you taking to mitigate these?

3. The company has carried out an assessment on worker shortages intheir supply chains and is engaging with their suppliers on this issue.

Communities
1. How has your company assessed the impact on communities within the
different regions it operates in and adapted its policies and frameworks
accordingly?

1. The company is aware of regional differences relating to the needs
and background of different communities and has done an impact
assessment of their transition activities on communities, reflected this in
their policies and frameworks.

2. What is your strategy for engagement with the local community andhow do you know it's successful? How are their views on your operations
that affect them taken into consideration?

2. Engagement with communities is clearly documented and as
frequent as required. Metrics are used to help track and monitor issues.
The company must have a strategy to ensure community voices areheard and an easy process for communities to be able to have a say inoperations that affect them.

3. Do you have a policy on Free, Prior, and Informed Consent (FPIC)?

3. The company must have a policy on FPIC and have ongoingengagement on this. This is particularly important in emerging markets
where many lack official documentation to their land.

Suppliers
1. Do you have policies/frameworks in place to assess the sustainability ofyour supply chains and engage with your suppliers on their social impact
and just transition policy?

1.The company has sound policies/frameworks and can demonstratemeaningful, ongoing engagement with their suppliers on their social
impact and just transition policy.

2. How are you preparing for Corporate sustainability due diligence(CSDDD) to meet supplier due diligence requirements? (Where
applicable).

2. The company has a sound formal framework/plan to help prepare
for CSDDD.

3. Are you able to source where all of the materials in your products comefrom and identify social risks within your supply chain?

3.The company has mapped where all materials are sourced, is awareof any risks associated with their supply chain and are taking steps tomanage those risks.

Consumers
1. Do you assess the affordability of your products for consumers acrossdifferent income groups?

1. The company has demonstrated they consider the impact of theirproduct pricing on consumers and takes action to ensure lower income
groups are not significantly disadvanaged and can access their products.
Engages with policy makers on this to support energy security andaffordability.

2. Do you engage with policy makers to help support energy affordability
and security for consumers?

2. The company engages with policy makers on this to support energy
security and affordability. has sound plans to manage current and
impending regulations.

Investing in a just transition: a framework for investors

18

Step 3: Capital allocation andproduct alignment
Investors can allocate capital to help enable a justtransition by investing in solutions across different assets,
including infrastructure, equities and bonds that align withjust transition principles.
Just transition alignment can be done at asset andproduct level. For example, SDG aligned investment
strategies can help foster a just transition.

At abrdn we offer four SDG aligned investment strategies
to cater to investors’ different risk appetites and investment
goals. They offer different asset class options: equities andfixed income; and diverse market exposures, including
Asia, emerging markets (EM) and global; as well as varied
engagement and impact reporting.
Investing in real assets is another important lever
to support SDGs and a just transition. The abrdn
infrastructure case study below showcases how this canbe done in practice.

Case study:
Puerto Antioquia
Investing into the build and operation of a new port
facility at Puerto Antioquia, on the Atlantic coastof Colombia to create better access to sea routes,
resulting in social benefits and reduced carbon
emissions.
Primary impact
Initial handling capacity of 600,000 20 foot containers (TEU) (expansible to 800,000 TEU), 1.15m tonnes of general cargo/year,
3m tons of bulk cargo, and 60,000 vehicles.

Wider impacts
1,600 construction jobs, commitment to fill 80% with
regional residents, priority to members of local ethnic
communities plus c.17,000 indirect jobs.
Commitment to the protection of workers’ rights aswell as specific guarantees related to freedom of
association and non-discriminatory management
and hiring practices. Strategic alliances withworkforce training institutions dedicated to increasing
employment rates among the local population.

The Project has developed a Resource Efficiency and
Pollution Prevention Plan, containing sub-plans forthe following thematic areas: atmospheric and noise
control; solid and hazardous waste; and pesticide use
and management.

Reduced CO₂ emissions:↓ 70m km p.a. truck travel distance =↓ CO₂ of 21.6m kg p.a.
↓ ship travel distance = ↓maritime CO₂ of 45.1m kg
p.a.
Better Infrastructure allows > efficient vessels → c60%
↓emissions per TEU-km.
Natural habitat net increase of c500% (2km²).
Measures taken to minimise impacts to natural
habitats. Management plans in place to protect local
habitats and deliver net gain.

673m USD Public Private Partnership, key to theeconomic and social development of the Uraba/
Antioquia region in Columbia.

Source: abrdn, 2023.

Investing in a just transition: a framework for investors

19

Where appropriate and in line with the objectives of an investment product, the III provides three criteria that investment
products need to meet to show alignment to a just transition. XVII These are shown in Figure 6 below and should be applied
across all three just transition elements, with clear KPIs to measure progress.
Figure 6 – Just transition product alignment criteria, III
Timeframe

Element 2
Improve socio-economic distribution
and equity

Element 1
Advance climate andenvironmental action

Element 3
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, eachunderlying investment contributes to all three Elements
Demonstrated via selected KPIs at product and investment level

Product[T+N* yrs]
*Ndeferredas part of
Criterion 1

Product
KPIs

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

Transitional
CO2# Patents Carbon%
job
Revenue in clean intensity avoided
programmes
p.a.
energy (reducing)fromrenewableenergyGender Engagement
% of
% of
employees women pay gap programme
in senior below (X) with affected
paid living
communities
leadership
wage

# of
community
representatives
in decision
making forums

Periodicsurvey on
servicesatisfaction
andaffordability

Source: Just-Transition-Criteria.pdf (impactinvest.org.uk).

These III just transition criteria can of course be used not only for product alignment, but also to identify investment risks
and opportunities, assess asset-level alignment and to shape engagement focus areas. The III offers funds to be piloted
using their proposed methodology which abrdn is currently considering exploring further.

Investing in a just transition: a framework for investors

20

Step 4: Policy advocacy and sovereign
engagement
It is essential for investors to advocate for policies that
support the just transition and engage with policy makers
on this topic where possible. This helps reduce systemic
and financial risks for investors and improves outcomesfor people. For example, infrastructure projects may havelarge implications for a just transition and be financed via
sovereign bonds, providing an opportunity to engage.
Engaging with sovereigns
Influencing sovereigns through direct engagement isusually more difficult than engagement with corporates,
that’s why policy advocacy and leveraging opportunities
to be vocal about just transition related policies isimportant. Investors can engage with sovereigns on thejust transition using:. the TPI ASCOR just transition indicator (Appendix 1). the ILO guidelines highlighting nine policy areas of action
for the just transition. the LSE publication recommending that policy makers
should embed just transition considerations at eachphase of the policy cycle:

In addition, policy advocacy and sovereign engagement
should highlight that a just transition strategy should beembedded in the country’s NDC and set the expectationthat the government should assess and manage thesocial impacts of the energy transition across different
stakeholders groups:. Workers: Are policies in place and funding available
to help workers in the transition to a low carbon
society. For example, a green jobs strategy, upskillingcourses etc?
. Communities: Are policies in place to protect

communities that are at risk from experiencing negative
effects from climate projects and have affected
communities been consulted (i.e., transmission lines overcommunity land, relocation, etc.)?

. Consumers: Are policies in place to protect consumers
in the transition to a low carbon economy, providing
adequate funding dedicated to ensuring consumers will
be able to access affordable clean energy?

– Phase 1. Planning and analysis– Phase 2. Participation and deliberation– Phase 3. Policy design for transitional assistance– Phase 4. Implementation and accountability– Phase 5. Monitoring and evaluation

Investing in a just transition: a framework for investors

21

The challenges of achievinga just transition
Achieving a just transition means avoiding, minimising or compensating for (where avoiding
or sufficiently minimising is not possible) adverse social impacts from the energy transition.
Understanding what this means in practice is challenging
for a number of reasons:
Data limitations: Complex social issues often defy apurely quantitative approach. Corporate disclosureson social issues are generally very poor, making it
difficult to understand their approach and contributions.
In many instances, qualitative assessments and active
engagement add meaningful insights that change ourunderstanding of what are appropriate, realistic goals
and progress. However, qualitative assessments also
require judgements to be made, which makes consistencya challenge.
Measuring success and progress: There is no ‘one size
fits all’ approach to a just transition. In defining successand tracking progress, it is important to consider local
conditions, such as economic development, energy
infrastructure availability and the range of active businesssectors in the region, among others. What’s more, a justtransition is not only an outcome, but also a process initself. Therefore, the ways in which we track progress andthe action required to achieve a just transition will evolve
over time and vary by geography. However, the recent
emergence of frameworks presented above helps
navigate these complexities.

Unclear roles and responsibilities: Fully addressing the justtransition requires action from governments, businesses,
investors, consumers and civilians. Currently, there is a lackof clarity about specific actions, roles and responsibilities
in order to achieve a just transition, particularly when it
comes to corporates and governments. Companies havea significant role to play in the transition, however, can theyrealistically be expected to be responsible for the transition
in a region indefinitely, particularly if governments
take policy action to drive it? These lines have yet to
be determined.
The need for a systems approach: The just transition
is so broad in scope that it requires a whole systems
approach across sectors, technologies and supply chains.
Governments, businesses, and investors, globally, mustcome together to foster a successful just transition. This isa highly complex task, given that environmental and social
situations and political contexts vary greatly by region.

What’s next?
Despite the complex and challenging backdrop, investors
can take actions to embed just transition considerations
into their investments, engagements and products byusing the frameworks and questions outlined in thispaper. They can also advocate for more policy support
to incentivise mobilisation of private capital for a justtransition and provide transparency in their climatetransition plans. As investor focus on a just transition
increases, businesses will need to be able to demonstrate
how their strategies and operations are aligned byconsidering the frameworks presented in this paper.
The outcomes of COP28 will be critical for shaping
government action to drive a just transition for all.

Investing in a just transition: a framework for investors

It is important to note that the four-step framework is a
proposal that has not been fully implemented at abrdn
yet but is a resource we draw upon as we are evolving
our approach to embedding just transition criteria into
our thinking. As next steps, we want to pilot suitable funds
using the III just transition criteria and explore the data
available on just transition assessments in more detail tohelp inform and strengthen our engagements.
In the remainder of the paper, we take a deeper lookat the four areas of the just transition that need to beconsidered by investors and how best to incorporate
this into decision making & engagement to facilitate ajust transition and manage the risks: workers, suppliers,
communities and consumers.

22Part 2

Key impacted
stakeholder groups

Investing in a just transition: a framework for investors

23

01

Workers

The transition to a low-carbon global economy will have consequences for jobs and workers,
the level of disruption depending on the sector and region. The risks and opportunities related
to this are critical for investors to understand and engage on.
How will the transition to net zero affectworkers?
At the aggregate level, the prevailing view is that thetransition to a net zero economy would lead to more job
gains than job losses. Job creation and destruction willvary greatly amongst countries and sectors. Countries
with stringent climate policies and a higher proportionof workers in the industrial sector, for example, will face
the transition more acutely. According to McKinsey’s
calculation based on a Net Zero 2050 scenario,10 thetransition could create in total c. 200 million jobs anddisplace c. 185 million jobs, resulting in a net impact ofaround 15 million more jobs by 2050. XVIIIGreening the economy changes occupations and skills in
two main ways:. Existing occupations may undergo reskilling or upskillingas existing skills are applied to new products or materials(which require new knowledge), or new skills areadded into the mix of existing skill sets. For example,
many construction occupations now involve the useof new green materials, requiring new knowledge
and techniques.

. New green-specific roles emerge for sets of work tasks
that require new skills. Solar-panel installers or windturbine technicians fall into this category. There may
also be hybrid occupations that build new job profiles
by uniting various specialist areas, such as that ofagricultural meteorologist in developing countries,
which combines expertise in both meteorology andagricultural sciences.
Which sectors will be most impacted?
Estimation in terms of job numbers is generally based on
net zero 2050 scenarios and differs significantly between
research organisations, but there is consensus on the
sectors which are predicted to experience net job gains
or net job losses as illustrated in Figure 7.

Figure 7:
Millions of jobs

40
30
20
10

31

Net job losses
5

0
-16

-10
-20

-33

Net job gains

-30
-40

Oil, gas,and coal

Auto

Capex jobs
(manufacturing
and construction)

Agriculture

Source: The-net-zero-transition-what-it-would-cost-and-what-it-could-bring-final.pdf(mckinsey.com).

Figure 8 shows that the gains and losses from the transition
are not binary (i.e., only gains or only losses) but thatmost sectors will experience both, but at different scales.
The auto sector for example is estimated to experiencenet job losses despite demand for new jobs to produce
electric vehicles (EVs). Our own engagement with someof the major auto manufacturers adds evidence tothis estimate.
Figure 8: Total job shifts by sector
Millions of jobs
Job
gains

80
60
40

69
52

20
0
-20
-40

40
25
-9

-38

5
0

0
-33

11
-3
-35

-68

-60

Job
Losses -80
Agriculture Auto

Power Hydrogen Oil, gas, Other 2
and coal

Capex
jobs

Operations and maintenance jobs
Source: McKinsey Global Institute the-net-zero-transition-what-it-would-cost-andwhat-it-could-bring-final.pdf (mckinsey.com).

Investing in a just transition: a framework for investors

24

Why does this matter to investors?

Changes in employment as a result of the net zerotransition is a dynamic progress. This means that someof the job gains would be transitory whereas others moresecure. For example, McKinsey’s analysis shows that,in construction, manufacturing, and other industries
associated with the buildout of low-emissions physicalassets, gross changes in employment shifts could be as
high as about 6 million by 2030, but will gradually reduce
to around 1 million by 2050 (assuming net zero by 2050),
which highlights the potential transitory nature of thesejobs (see Figure 9). XXI

How companies manage the impacts of the transition on
their workforce will pose considerable investment risks
and opportunities for investors. There are two main typesof risks facing companies within the sectors most exposedto the energy transition: restructuring risks and humancapital risks.
Restructuring risks

Figure 9: Job gains in construction and manufacturing basedon a net zero 2050 scenarioXXII
Employment shifts, gross changes associated with a net-zero transition,
million jobs
2030

6

2040
2
2050

1

Job gains associated with the transition would be front-loaded when the
majority of building insulation would be installed.
Includes direct and indirect jobs
Capex (gains)
Capex (losses)
Source: McKinsey Global Institute the-net-zero-transition-what-it-would-cost-andwhat-it-could-bring-final.pdf (mckinsey.com).

Which countries will be most impacted?
The impact on jobs varies by country and depends
on its economic exposure to the net-zero transition.
The transition will affect lower-income and fossil fuelproducing countries more acutely, such as Pakistan, India,
Bangladesh, Kenya, Nigeria and Indonesia. Significant
fossil fuel production also creates high exposure forsome countries, such as Qatar, Russia and Saudi Arabia.
Countries with relatively higher shares of jobs, GDP,and capital stock in sectors with emissions-intensive
operations, products and supply chains, are more exposedto the transition.
Regions that stand to benefit most from a new job creation
perspective are Americas, Asia Pacific and Europe
according to the ILO, given their higher exposure to sectorsthat are predicted to have net job gains.XXIII It is important
to note that even within developed countries, the impactsof the net zero transition on jobs will be felt unevenly in
different regions.
Investing in a just transition: a framework for investors

Restructuring is inevitable for the transition to a low carbon
economy and doing this responsibly is critical to a justtransition. Corporations must endeavour to restructure
their business responsibly, by:. Including their employees in the restructuring process.
. Limiting redundancies.
. Endeavouring to reduce the negative consequences ofredundancies.XXIV
Failing to restructure responsibly can lead to poor
business outcomes including lower employee morale,
reduced efficiency by hiring from the outside instead of
reskilling/upskilling current employeesXXV and adverse
media coverage.
Human capital risks
These mainly manifest in skills mismatches and skills
shortage which can impede a company’s progresson the green transition. According to the International
Energy Agency (IEA), the energy sector already faces
difficulty hiring qualified talent to keep pace with clean
energy’s uptick. If solar and wind installations reachfour times today’s annual level in 2030, as called for in
IEA’s net zero scenario, these labour constraints could
impede the world’s ability to accelerate the shift to alow- carbon future.XXVI
Arguably, these risks can be better managed througheffective government policies and the inclusion of skills
for green transition into the formal vocational training
system. Based on ILO’s survey, while most countries
have environmental policies, there are only a handful ofcountries with policies at either the national or the regional
level for skills development (e.g., Denmark, Estonia, France,
Germany, United Kingdom, US, China, India, South Korea,
the Philippines and South Africa). Similarly, few countries
have incorporated skills for the green transition into theformal vocational training curriculum. XXVII
25

Green jobs
Across all countries, green jobs are forecasted to bea source of employment growth. Sectors with thegreatest employment potential are construction,
agriculture, renewable energy and environmental goods
and services. XXVIII

What actions can investors take?
Investors can allocate capital to companies thatmanage the risks and opportunities of a just transition
well, for example, by demonstrating human capitalmanagement practices that support the creation of green
jobs. Impact investors could also measure the numberof green jobs created by a company to demonstrate thepotential positive impact of their investments beyond
financial return.
Investors can look to the tools available to assess theimpact on workers:
CA100+ net zero benchmark criteria

What is a green job?
According to the ILO, a green job helps:

XXIX. Improve energy and raw materials efficiency. Limit greenhouse gas emissions. Minimize waste and pollution. Protect and restore ecosystems. Support adaptation to the effects ofclimate change
Beyond the above, the ILO broadens the definition ofa green job, including the attributes of ‘decent work’,for a job to be considered green. XXXThe ILO defines decent work as "... productive anddelivers a fair income, security in the workplace andsocial protection for all, better prospects for personal
development and social integration, freedom forpeople to express their concerns, organize andparticipate in the decisions that affect their lives andequality of opportunity and treatment for all womenand men.

. Metric 9.1b: The company has committed to retain,
retrain, redeploy and/or compensate workers affectedby decarbonisation efforts.
. Metric 9.2a: The company has developed a Just
Transition plan for how it aims to support workers
and communities negatively affected by its
decarbonisation efforts.

. Metric 9.2b: The company’s Just Transition plan
was developed in consultation with workers,
communities and other key stakeholders affected byits decarbonisation efforts. XXXIWorld Benchmarking Alliance indicators and guidance. The company demonstrates how it engages both insocial dialogue - including with unions (or equivalent
worker bodies where the right to freedom of associationand collective bargaining is restricted under law) - andmore broadly with stakeholders, in the development of
its just transition planning.
. The company has a set of timebound, measurable
indicators to mitigate the social impacts of the low
carbon transition on workers.

. The company has a public commitment to create andprovide or support access to green and decent jobs aspart of the low carbon transition.
. The company assesses and discloses the risks of

employment dislocation caused by the low carbon
transition and related impacts on workers and affectedstakeholders. XXXII. Creating, providing or supporting access to green anddecent jobs for an inclusive and balanced workforce.
. Retraining and re-and/or up-skilling workers for an
inclusive and balanced workforce. XXXIII

Investing in a just transition: a framework for investors

26

Once companies have been identified, investors can engage on a just transition for workers using the questions below:
Table 5: A just transition for workers
Engagement questions

What a good answer should include

1. How do you manage the impact on the employees
in your business as a result of your transition strategye.g., restructuring and reducing the number of workers,
providing new opportunities to learn new skills and workin green jobs?

1. The company has assessed job losses and the need for
restructuring and redundancies. It has a strategy tomanage the impact on the business and make sureworkers are treated fairly. E.g., funding for reskilling/
upskilling programmes, provide opportunities in green
jobs, voluntary redundancies and early retirement
packages. Working with unions to help avoid strikes.

2. Have you consulted your employees in your climatetransition plan and restructuring process?

2. There is clear documented evidence of employees
consulted in the climate transition and restructuring
plans. It must demonstrate that employees have hadsignificant input and that the company has acted on
the input.

3. Are there worker shortages within your supply-chainthat can hinder your transition plan, if so, what actions
are you taking to mitigate these?

3. The company has carried out an assessment on
worker shortages in their supply chains and is engaging
with their suppliers on this issue.

Case study:
abrdn just transition engagement with the autos sector
At abrdn, we have engaged extensively with autos companies on their plans to manage thetransition to a low carbon economy. As EV production requires fewer employees, there will be adecrease in workers in this sector and a need for different skills.
From our engagements, it is clear that auto businesses are very aware of the impact of the transition on theirworkers and have plans and policies in place to help manage negative outcomes. Many invest in training andupskilling opportunities for current employees in the first instance. Autos firms are looking at a natural reduction in
employees, offering those the end of their careers early retirement packages where possible, and do not plan toreplace them.
This can partially be attributed to where the corporation is located, i.e., in most European countries, companies will
engage with the unions on a natural reduction in employees. Overall, the companies we have engaged with have aclear preference to upskill their current workforce.
BMW for example has taken clear measures to support a just transition for its employees. This includes continuous
employee training and establishing an academy where 2,300 different training seminars are organised (including
health & safety and e-mobility cooperation with universities). This academy is also available to suppliers. BMW
conducts annual surveys which have been stable for years. Focusing on employee optimism for the future theresults are above 80%.

Investing in a just transition: a framework for investors

27

02

Suppliers

We must not only consider the environmental and social impact of companies we invest in,
but those in a company’s supply chain where many human rights violations can be hidden.
Businesses cannot claim to be sustainable and promoting a just transition if the suppliers they
use are not adhering to these values.
How will the transition to net zeroaffect suppliers?
Fundamental shifts in the way we produce energy,
manufacture goods, and create new low carbon
products will include inevitable changes in supply chains.
For example, minerals and metals are required for low
carbon energy infrastructure, such as solar panels andbatteries. The mining sector is therefore a key part of the
supply chain for renewables companies, but has been
riddled with human rights abuses particularly in relation
to community impacts. Suppliers not upholding humanrights must be held to account and companies must haveclear due diligence process in place to make sure justtransition principles and human rights are adhered to in
their supply chains.
Supplier due diligence regulations
Dependent on the region, companies are subject toregulations on supplier due diligence.
Of particular relevance to a just transition, France’s
Corporate Duty of Vigilance Law (2017) requires large
companies to detect and prevent adverse environmental
impacts and human rights abuses resulting from theirdirect business activities, business activities of corporations
they have control over, and activities of their suppliers andsubcontractors.
In 2021, the EU Conflict Minerals Regulation came into
effect. The law requires EU based companies that importtin, tantalum, tungsten, and gold (3TG), the minerals which
are most often associated with human rights abuses,
to check and ensure the minerals they import are notfunding conflict or illegal practices. Importers must follow
the Due Diligence Guidance for Responsible Supply
Chains from Conflict-Affected and High-Risk Areas, afive-step framework by the Organisation for Economic
Co- operation and Development (OECD).

Importers must:. Establish strong company management systems;. Identify and assess risk in the supply chain ;. Design and implement a strategy to respond to
identified risks;. Carry out an independent third-party audit of supply
chain due diligence, and;. Report annually on supply chain due diligence.

Case study:
EU’s upcoming Corporate
Sustainability Due Diligence Directive(CSDDD)
Regulation to address supply chain issues continues
to strengthen. The EU’s CSDDD, proposed in 2022
and expected to come into force in 2024, will requirelarge companies to not only undertake due diligencemeasures on their own business activities, but of their
suppliers as well. The aim is to manage the potential
impact of their activities on the environment and on
human rights.xxxiv
Table 6: Companies affected by CSDDD
Companies

Generated global (net)turnover

Employees

EU-basedcompanies

Exceeding
EUR 40 million

More than 250
employees

EU-based parent
companies

Exceeding
EUR 150 million

More than 500
employees

Non-EU
companies

Exceeding EUR 150
million, provided that atleast EUR 40 million is
generated within the EU

N/A

Non-EU parent
companies

Exceeding EUR 150
million, from which atleast EUR 40 million was
generated in the EU

More than 500
employees

Source: The Corporate Sustainability Due Diligence Directive (CSDDD): theposition of the European Parliament and potential impact | Loyens & Loeff(loyensloeff.com).

Investing in a just transition: a framework for investors

28

Why does this matter for investors?

What actions can investors take?

Undertaking due diligence on supply chains helps
companies mitigate risks, including reputational risk by
association with potentially problematic suppliers, which inturn has financial implications for the firm and for investors.

Investors should incorporate supply chain related justtransition questions into their engagements. We would
like to see companies:

In addition, there may be regulatory risks and increased
costs for companies struggling to meet CSDDD
requirements. Companies that are already taking into
account the sustainability of their suppliers will likely findthis regulation less onerous than those that are not.

. Undertake due diligence on the sustainability of
their suppliers.
. Have continuous engagement with their suppliers onsustainability concerns.
. Encourage transparency from their suppliers onsustainability issues.

Table 7: Supply chain engagement questions
Suppliers
Engagement questions

What a good answer should include

1. Do you have policies/frameworks in place to assess
the sustainability of your supply chains and engage
with your suppliers on their social impact and justtransition policy?

1.The company has sound policies/frameworks andcan demonstrate meaningful, ongoing engagementwith their suppliers on their social impact and justtransition policy.

2. How are you preparing for CSDDD to meet supplier due
diligence requirements (Where applicable)?

2. The company has a sound formal framework/plan tohelp prepare for CSDDD.

3. Are you able to source where all of the materials in yourproducts come from and identify social risks within yoursupply chain?

3.The company has mapped where all materials
are sourced, is aware of any risks associated with
their supply chain, and are taking steps to manage
those risks.

Investing in a just transition: a framework for investors

29

03

Communities

Many companies have a significant effect on the communities where they undertake theirbusiness operations. It is therefore crucial that companies are aware and manage their social
impact positively.
Green conflict minerals

How will the transition to net zero affectcommunities?
This section focuses on two major issues that acutely
affect communities which need to be addressed to enablea just transition: green conflict minerals and competition
for land and resources.

The technologies required to facilitate the shift torenewable energy require significant mineral and metal
inputs from the mining sector. The IEA has highlighted
the minerals and metals needed for clean energy
technologies in the table below. XXXV

Figure 10: Critical mineral needs for clean energy technologies
CopperCobaltNickelLithium

REEs

Chromium

Zinc

PMGs

Aluminium

Solar PV
Wind
Hydro
CSP
Bioenergy
Geothermal
NuclearElectricity networks
EVs and battery storage
HydrogenRelative importance of minerals for a particular clean energy technology: High:

Moderate:

Low:

Shading indicates the relative importance of minerals for a particular clean energy technology, which are discussed in their respective sections in this chapter. CSP = concentrating
solar power; REEs = rare earth elements; PGM = platinum group metals. * In this report, aluminium demand is assessed for electricity networks only and is not included in the aggregate
demand projections.
Source: International Energy Agency (IEA) (2022) The Role of Critical Minerals in Clean Energy Transitions [Online]. Available at www.iea.org/reports/the-role-of-critical-minerals-inclean-energy-transitions (Accessed 5 January 2023).

Investing in a just transition: a framework for investors

30

Many of these minerals and metals will see exponential
growth in demand as the world transitions to cleaner
energy sources. For example, according to the World
Bank, demand for lithium will increase by 965% in 2050
compared to production levels in 2017. XXXVI The race
to extract minerals and metals heightens the risk ofirresponsible business activities and makes engagementand due diligence on companies operating in this spaceeven more critical.
The mining sector is already central to the economies
of many countries and regions, providing employment,
income and trade opportunities, which can stimulate
sustainable development. XXXVII However, the sector
also tends to be strongly associated with human rights
abuses – at times these abuses are so severe that theyspark violent internal conflict or devastate vulnerable
communities.
The International Institute for Sustainable Development(IISD) points to a number of ways in which mineral
extraction can fuel human rights risks, including
conflict over access to land, displaced communities,
and gaining control of the extraction and trade ofvaluable minerals. XXXVIIIIISD’s 2018 analysisXXXXI combines the Fragile States
Index XLI and Corruption Perception Index and overlays thisinformation with established mineral reserves (defined
as resources known to be economically feasible forextraction). From this analysis, the IISD concluded thatcobalt, copper, graphite and rare earths are of particularconcern, with significant deposits concentrated in
potentially vulnerable regions which investors need to
pay particular attention to.
Global Investor Commission on Mining 2030
This Commission (which abrdn are part of) was
launched in January 2023 to address the systemicrisks faced by the mining sector that challenge its
social license to operate and the role it needs toplay in providing the minerals for the low-carbon
transition. It aims to consider the standards, practicalsteps and investment needed to secure mining’s
future, recognising the central role the mining
industry must play in the just transition to a lowcarbon economy and the vulnerability of supply
chains to mineral demand.

Investing in a just transition: a framework for investors

Competition for land and resources
As natural resources become scarcer and land use
requirements for renewables grow (e.g., for wind farms
and hydropower plants), competition for land andresources will increase and potentially create tension
or social conflict. According to the UN Environment
Programme (UNEP), between 1946-2006 at least 40% of
all intrastate conflicts have a link to natural resources. XLIIIndigenous communities are often particularly affected.
Indigenous peoples have additional human rights
protections via the UN Declaration on the Rights ofIndigenous Peoples (UNDRIP), which requires Free,
Prior and Informed Consent (FPIC) in relation to land use.
Many indigenous groups have a heighted awareness ofenvironmental considerations and actively advocate forthe transition to a low-carbon economy – however, thesegroups are sometimes resisting renewable energy projects
due to unaddressed impacts on their livelihoods. Many lack
official documentation to their rights to land, making
it easy for land to be allocated to renewable projects
without ensuring FPIC is upheld. This can lead to significant
protests, social unrest and conflicts with communities.
When considering the responsible use of land, it is alsoessential to consider the responsible decommissioningof fossil fuel assets, not only for the environment but
for communities that are in close proximity to thesesites. Coal mines in particular are very hazardous due
to causing highly-acidic water and polluted land andcan have major health impacts that businesses need to
manage and avoid.

Why does this matter to investors?
For companies, human rights risks and opportunities,
including those associated with a just transition, fall into
three areas – reputation, operations and regulation.
The fallout from failing to respect human rights can hit
any or all of these, ultimately affecting asset valuations.
Operational risks
Operational risk and human rights are closely connectedto the idea of a ‘social licence to operate’ (SLO). The SLO isa concept that recognises a company can only continue
to operate as long as its employees, stakeholders andwider society are willing to tolerate it. It is comparable toa regulatory licence in that, if revoked, it can potentiallydisrupt operations and lead to business losses.
The financial consequences can be severe as illustrated
in the case study below.
31Case study:
Las Bambas mine, Peru
Peru is the world’s second largest
copper producer, after Chile.
Las Bambas mine, which is owned and operated
by MMG Ltd, produces 2% of the country’s total
copper output. XLIII In April 2022, Las Bambas went
offline for two months due to community protests
over the construction of a second open-pit mine(known as Chalcobamba). These were not the firstprotests at the mine. According to the BBC, between
2016 and April 2022, operations at Las Bambas
were interrupted due to protests on more than 400
days. XLVI While operations have resumed, talks with
community leaders have reportedly stalled, leaving
risks of further protests and operational disruption.
In addition, MMG has no timeline for commencing
construction on Chalcobamba, which was originally
expected to be online by the end of 2022. XLVUsing MMG’s production volume estimates for
Las Bambas, the operational shut-downs due
to protests between 2016 and 2022 resulted in aloss of approximately 395,000 tonnes of copper
concentrate, the equivalent of more than a year’s
production volume. XLVI MMG profits dropped by$504 million in the first six months of the year due toprotests at Las Bambas and falling copper prices. XLVII

Reputational risk
Controversies related to a lack of engagement andconsideration of community needs can do significant andlasting financial damage. Research has shown that, over
five years, major ESG controversies wiped out $500 billionof market capitalisation from the S&P 500 Index. XLIXAs well as avoiding risks, there are multiple financial
benefits for companies to establish and maintain a strong,
positive corporate reputation for respecting human rights.
These include increased investor confidence, building
customer loyalty, strengthening business partnerships andsupply chain, and attractive and retaining talent.
Regulation
Since 2015, climate change related lawsuits have morethan doubled to over 2,000 total cases globally (figure asof 2022) L. There is an emerging trend in cases brought byindigenous people and affected communities that utilise
human rights arguments to question the distribution of thebenefits and burdens of the energy transition. In Mexico,
for example, a court cancelled EDF’s contract for a windenergy project following a lawsuit filed by the Unión
Hidalgo community due to inadequate consultation. LI
Figure 11: Company allegations 2010-2021
Number of times Business & Human Rights Resource Centre approachedcompanies about allegations.
80
70
60

Adopting a robust policy that ensures respect forhuman rights enables companies to operate more
efficiently and effectively, particularly in complex or
unfamiliar environments, or areas of conflict. Community
engagement is a recognised way of establishing andmaintaining an SLO, especially where land rights are
weak, environmental impacts are likely, or where the local
economy is dependent on a small number of industries for
employment. A strong engagement approach can add
considerable value for businesses. A study of 19 publicly
traded gold-mining companies revealed that two-thirdsof their market capitalisation was a function of the firm’s
stakeholder engagement practices; only one-thirdreflected the value of gold in the ground. XLVIII

Investing in a just transition: a framework for investors

50
40
30
20
10
0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Number of allegations

Source: Business & Human Rights Resource Centre (2021) Renewable Energy & Human
Rights Benchmark 2021 [Online]. Available at www.business-humanrights.org/en/fromus/briefings/renewable-energy-human-rights-benchmark-2/(Accessed 5 January 2023).

32

The Business & Human Rights Resource Centre (BHRRC)
research into this issue shows that allegations ofabuse are rising, particularly in Latin America and Asia.
Between 2010-2020, the BHRRC identified over 200
allegations of human rights abuses related to renewableenergy projects. Hydropower projects have a notably poor
track record LII, but almost half of the allegations (44%)
are from the wind and solar sectors. Allegations include:
killings, threats, and intimidation; land grabs; dangerous
working conditions and poverty wages; and harm toindigenous peoples’ lives and livelihoods. LIII
The BHRRC has developed a benchmark to assess
the human rights policies and practices of renewables
companies. Overall, BHRRC found the results to be‘profoundly concerning, with companies scoring an
average of just 28%.’ LIV Companies scored the lowest
in areas that BHRRC considers to be the most criticalhuman rights risks: land rights, indigenous people’s
rights and protections for human rights defenders. LVWhat actions can investors take?
A key priority is to engage with firms they invest in tounderstand how these engage with communities.
We would like to see companies:. Have ongoing and meaningful engagement withlocal communities.
. Ensure the voices of the local communities are

CA100+ net zero benchmark criteria:. Metric 9.1c: The company has committed that new

projects associated with its decarbonisation efforts aredeveloped in consultation with affected communities
and seek their consent.

. Metric 9.2.b: The company’s Just Transition plan
was developed in consultation with workers,
communities and other key stakeholders affected byits decarbonisation efforts.
World Benchmarking Alliance indicators and guidance. The company must have a clear process in place toidentify job dislocation risks and impacts applicablefor both stakeholder groups: its workforce (employees,
non-employee workers) and communities.

. The company discloses its process(es) for identifying
skills gaps for workers and affected stakeholders in
the context of the low carbon transition, which involves
engaging with unions (or equivalent worker bodies
where the right to freedom of association and collective
bargaining is restricted) and communities.
. The company must disclose how, through its contractual
agreements, it expects its business relationships tocontribute to social protection (e.g. pensions andhealthcare) for workers and communities. This could,
for example, be through its supplier code of conduct or
procurement principles.

genuinely taken into account.
. Have a positive effect on local communities.
. Engage with government to tackle environmental
and social issues.

In addition to the resources outline in this section, investors
can look at the following tools available to assess
how companies are managing the impact they haveon communities.

Investing in a just transition: a framework for investors

33

BHRRC tracker
The BHRRC developed a tracker to assess the human rights practices of companies producing transition minerals.
They track 103 companies producing 6 minerals (cobalt, copper, lithium, manganese, nickel and zinc). Between 20102021, there were 495 allegations of human rights abuses against these companies, one-third of which relate to attacks*
on human rights defenders.11 Almost 60% of the allegations relate to just 12 companies. LVI
Table 8: Communities related engagement questions
A just transition for communities
Engagement questions

What a good answer should include

1. How has your company assessed the impact oncommunities within the different regions it operates inand adapted its policies and frameworks accordingly?

1. The company is aware of regional differences relating
to the needs and background of different communities
and has done an impact assessment of their transition
activities on communities, reflected this in their policies
and frameworks.

2. What is your strategy for engagement with the local
community and how do you know it's successful?
How are their views on your operations that affectthem taken into consideration?

2. Engagement with communities is clearly documented
and as frequent as required. Metrics are used to help
track and monitor issues. The company must have astrategy to ensure community voices are heard and aneasy process for communities to be able to have a say
in operations that affect them.

3. Do you have a policy on Free, Prior, and Informed
Consent (FPIC)?

3. The company must have a policy on FPIC and haveongoing engagement on this. This is particularly
important in emerging markets where many lack
official documentation to their land.

Investing in a just transition: a framework for investors

34

A just transition: India and the issue ofland rights
Over the last several years, India, the third-largest emitterof CO2 in the world, has made great strides to increase
its renewable energy capacity. In the country’s push toaccelerate renewable energy, the issue of land rights is
an area that’s potentially overlooked by many investors.
Reputational damage, adverse media coverage,
and project delays are all risks that can arise fromthese land conflicts.
With India's ambitious renewables capacity target, vastquantities of land are required for solar farms. This cancome at the expense of local communities using it forlivestock grazing and farming purposes. These common
lands, often referred to as orans by locals, have been used
for generations by communities with no legal ownership ofthe land, which is a common practice in India.
The Indian government has classified some of thesecommon lands as wastelands, limiting the ability to provide
fair compensation to local communities for its use, forexample for renewable energy production. Many farmers
who do own land only own small plots and lease morefrom the government. But these are often informal
agreements and therefore, the farmers have limitedaccess to benefits such as credit, insurance, and subsidies.
Local communities often cannot afford to pursue legal
matters, which results in conflict resolution throughinformal negotiations, and payoffs.
Corporate engagement and due diligence are importantavenues investors can use to help mitigate risk andfacilitate change. Investors can engage with renewableenergy developers and set out clear expectations on
land-rights issues, including:. The company is aware of land-rights risks and has
policies to address concerns.
. The company ensures that the voices of local people

We've identified four stages of land procurement bestpractice:
Figure 12: Best practices in the procurement of land

Physicalassessment of
the land site

Verification ofland ownership
titlesEstablishingagreements withlandowners

Ongoingmanagementof community
relations

Encouraging transparency allows companies todemonstrate they have properly assessed these concerns
in their plans. There must be FPIC from existing landowners
and land beneficiaries for the approval of such projects.
The considerable growth in renewables in India provides
investors with a big opportunity to support the energy
transition. At abrdn, we regularly engage with therenewables companies we invest in to help ensure landhas been procured fairly. Our engagements across thesector enabled us to identify companies that were not
only aware of the risks but have been proactive and open
to engaging with investors to address the issue of land
rights. For example, some companies lease land from theoriginal landowners and employ the local communities
onsite. This not only allows original landowners to retain
titles over the land, but also provides consistent income.
Safeguarding the interests of local communities requires
companies to establish and maintain sound and longlasting relationships with landowners and surrounding
land beneficiaries.

are heard.
. The company delivers benefits to local people.

Investing in a just transition: a framework for investors

35

04

Consumers

The transition to a low carbon economy has implications for energy security, and how
customers can access clean and affordable energy.
SDG7 is to “ensure access to affordable, reliable,
sustainable and modern energy for all”. Hundreds ofmillions of people globally still do not have access toelectricity. LVII In developing countries, energy poverty ismore acute, particularly in rural areas. In more developed
regions, consumers have access to energy but arebecoming more conscious of their environmental impact.
Policymakers and businesses are endeavouring toprovide people with more sustainable options, but these
options need to be affordable, too. Connecting people tosustainable sources of energy continues to be a challenge
and the transition to a low-carbon society is likely toimpact energy costs in both developing and developed
markets. At the same time, the cost of solar and windenergy has fallen significantly, and is already cheaper thanfossil fuels-based electricity production in some regions,such as India.12
Figure 13: Average installed cost for solar photovoltaics
worldwide from 2010 to 2022
Cost in US dollars per kilowatt installed
6000
5000
4000
3000
2000

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

0

2010

1000

Source: https://www.statista.com/statistics/809796/global-solar-power-installationcost-per-kilowatt/.

Investing in a just transition: a framework for investors

How will the transition to net zero affectconsumers?
Affordability and reliable access
Rising fossil fuel prices strengthen the need for affordable
renewable energy. Although we have seen a reduction inenergy prices this year in many regions (2023), between
January and April 2022, the World Bank's energy priceindex rose by 26.3%, exhibiting the acute increases incoal, oil, and natural gas prices resulting from a rangeof problems, including supply and demand issues.
Price increases such as those in 2022 can put significant
pressure on consumers. LVIII
In 2022, fossil fuel subsidies reached $7 trillion (7.1% ofGDP).13 This was an increase in $2 trillion from 2020, as aresult of government support to help curb rising energy
prices. This highlights the dilemma for governments
between affordability and reducing reliance on fossil fuels.
Removal of these subsidies could impact those on lower
incomes the most. Carbon pricing mechanisms may also
increase energy prices as companies pass on these costs
to consumers.14
From a structural point of view, integrating renewableenergy into current power grids can be complex and
expensive, which might limit renewable energy expansion
and restrict energy access for some consumers.15
According to the IEA, only 15% of the global population
uses 50% of clean energy supplied, with the majority ofthese consumers living in advanced economies. However,as renewable technologies have become more efficientand widespread, this this may continue to make clean
energy more affordable for more consumers. In someplaces, such as India, electricity from renewables ischeaper than fossil fuel-based electricity, and its shareof renewables in total energy supply is increasing16. It is
crucial for governments to ensure that energy remains
affordable and accessible for consumers, and that they
are not forgotten in the pursuit of a low carbon economy.

36

The transition to a low carbon society facilitates thedevelopment of decentralised systems that may
empower consumers. By promoting solutions such as
solar microgrids, off-grid solar systems, rooftop solar
panels, and community wind farms, the transition may
improve energy access and affordability for consumers,
particularly in remote or underserved areas.

Why does this matter for investors?

Environmentally friendly technology continues to progress,
however, these are still generally only accessible for
wealthier consumers. For example, as EVs become moreprevalent, and low-carbon public transportation options
continue to improve, some consumers now have accessto a range of eco-friendly alternatives for their daily
travel.17 However, EVs are still generally not affordable for
consumers with lower incomes. Governments can issue
grants to help make low carbon transport more attainable
for all.

Reputational risk

Germany's Energiewende initiative is a long-term
strategy aimed at transforming the country's
energy system by focusing on renewable energy
sources, increasing energy efficiency, and reducing
greenhouse gas emissions. This plan seeks tocreate a more sustainable and environmentallyfriendly energy landscape while also promoting
economic growth and energy security. As theinitiative progresses, consumers are likely to witness
a gradual shift in their energy supply, with a greater
focus on clean and renewable sources like solar,
wind, and biomass. In the long run, a well-managed
just transition is expected to result in more stableenergy prices, improved air quality, and potentiallylower overall energy costs, thus benefiting both theenvironment and consumers in Germany. LIX

Investing in a just transition: a framework for investors

If different groups of society are unable to afford accessto reliable energy, this can lead to major protests anddestabilise whole regions, leading to systemic risks
and financial implications for businesses, governments
and investors.

There is a reputational risk of investing in companies thatprovide basic needs, such as energy, which ramp up prices
for consumers whilst taking large profits. This may also
lead to protests and financial implications for companies
and governments as illustrated in the case study below.
Demand implications
It can also lead to reduced demand from consumers
who cannot afford the cost of more sustainable options
and may look for alternatives/substitutions with financial
implications for businesses.

The 2018 “yellow vests” movement was aclear example of consumer backlash against
unaffordable energy in pursuit of climate goals.
In President Macron’s efforts to decarbonise, a fueltax was imposed and many argued that this had
a disproportionate negative financial effect on low
income groups. This was the catalyst for violent
protests. The total cost of responding to these
protests stood at 17 billion euros in April 2019. LX
Trucking federations stated they had incurred
400 million euros in operating losses as a result of
the protests, with protestors blocking access tofuel depots. Furthermore, a French oil company
announced that 75 of its petrol stations had dried up
because of protestors preventing access. LXI

37

What actions can investors take?
Investors can work with policy makers to emphasise theimportance of the “just” aspect in the transition to a low
carbon society and help ensure affordable access toenergy as well as mitigate scenarios of consumer protests.
In turn, this may reduce financial risks arising from unjust
government policies which could negatively impact
businesses. Key areas of focus to help consumers in thetransition include financial support, energy efficiency
programmes and targeted subsidies.
It is also important for investors to understand how firms
assess and manage the impact their transition strategy
has on consumers. We would like to see companies:. Demonstrate they have taken their consumers
affordability and access into consideration.
. Demonstrate engagement with policymakers

Investor just transition tools related to consumers are
currently limited. The below CA100+ benchmark subindicators were included in the 2022 beta version of the justtransition indicator but were dropped in the 2023 version.
So, there is no assessment data available, but using these
indicators can be helpful in company engagements:. Sub-indicator 9.4 Action, Metric a): The company
supports low-carbon initiatives (e.g. regeneration,access to clean and affordable energy, site repurposing)in regions affected by decarbonisation.
. Sub-indicator 9.4 Action, Metric c): The company takes
action to support financially vulnerable customers
that are adversely affected by the company’s
decarbonisation strategy.

(where applicable) to provide support to deliver
sustainable and affordable products.

Table 9Consumers
Engagement questions

What a good answer should include

1. Do you assess the affordability of your products for
consumers across different income groups?

1. The company has demonstrated they consider the
impact of their product pricing on consumers andtakes action to ensure lower income groups are notsignificantly disadvanaged and can access theirproducts. Engages with policy makers on this to support
energy security and affordability.

2. Do you engage with policy makers to help support
energy affordability and security for consumers?

2. The company engages with policy makers on this tosupport energy security and affordability. has soundplans to manage current and impending regulations.

Investing in a just transition: a framework for investors

38

Conclusion

Not taking into account social factors whilst pursuing
climate ambitions can come at significant financial costfor businesses, governments and investors. Over the
coming decades there is likely to be more stringent policy
aimed at decarbonising, and consequently it is importantfor investors to understand how the governments andcompanies they invest in are managing this in a sociallyjust way, understanding the impact on the key stakeholder
groups they affect and take their voice into consideration.
Investors can apply the four-step framework outlinedin this paper to take action and embed just transition
considerations into their investment processes,
engagements, products and policy advocacy.
Importantly, addressing just transition issues will not only
mitigate financial risks, but also greatly benefit our global
society as we move towards net zero. Investors haveclear, effective actions they can take and should notunderestimate the influence they have in facilitating ajust transition.

Investing in a just transition: a framework for investors

39

Appendix 1
Transition Pathway Initiative’s ASCOR
Climate Policy just transition indicator

Indicator CP 6.a

Has the country ratified fundamental human, labour and Indigenous rights conventions?

Methodology

A country is assessed as 'Yes' if the following are true:
1. The country has ratified at least half of the UN's 18 international human rights instruments
2. The country has ratified at least half of the International Labour Organisation's 14 Fundamental
and Governance Conventions
3. The country has ratified the Indigenous and Tribal Peoples Convention No. 169
4. The country has endorsed the United Nations Declaration on the Rights of Indigenous Peoples.
These international treaties and declarations form a universal and comparable foundation forclimate-specific just transition policies.
Countries without Indigenous peoples are exempt from criteria 3 and 4. Guidance on such
exemptions is drawn from the International Work Group for Indigenous Affairs (IWGIA) (Mamo etal., 2023).

Metric CP 6.a.i

At what percentile is the country's Voice and Accountability estimate?

Methodology

This metric is drawn from the World Bank's Worldwide Governance Indicators, of which the
Voice and Accountability Indicator captures freedom of expression, freedom of association, free
media and citizens' participation in elections. A country's percentile rank shows the percentage
of countries with a lower Voice and Accountability estimate. Similar to indicator CP 6.a, this metriccontributes contextual information on a universal and comparable foundation of freedom anddemocratic rights for climate-specific just transition policies.
Note that standard errors reported by the World Bank should be considered alongside this metricto make statistically significant cross-country comparisons. For further information, see theWorldwide Governance Indicators methodology (Kaufmann and Mastruzzi, 2010).

Indicator CP 6.b

Does the country have an inclusive and institutionalised approach on just transition?

Methodology

A country is assessed as 'Yes' if it has a just transition strategy that fulfils all of the following:* It involves social dialogue with workers* It involves engagement with at least three of the following stakeholder groups: Indigenous
peoples, rural communities, minorities, a citizen's assembly for climate, civil society, low-income
households, women, young people, or another specified group* It establishes a just transition commission, defined by Heffron (2021) as a body that provides
expert advice on just transition measures

Indicator CP 6.c

Does the country have a green jobs strategy?

Methodology

A country is assessed as 'Yes' if it has a green jobs strategy that identifies employmentrelated risks and opportunities from the low-carbon transition and sets actions, measures,or policies to address identified risks and harness opportunities. Such measures may include
creating decent green jobs, addressing job losses caused by the transition, and launching skill
development programmes.

Indicator CP 6.d

Does the country integrate just transition into its carbon pricing?

Methodology

A country is assessed as 'Yes' if its implementation of carbon pricing involves a clear
acknowledgement or mechanism to address the potentially regressive distributional impacts
on lower-income citizens. If the country has no carbon pricing, this indicator is assessed as'Not applicable'.

Investing in a just transition: a framework for investors

40

Appendix 2
ReferencesI.

sb2023_09_adv.pdf (unfccc.int)

II.

https://ukcop26.org/supporting-the-conditions-for-ajust-transition-internationally/

III.

IV.

V.

Just Energy Transition Partnerships: An opportunity
to leapfrog from coal to clean energy | International
Institute for Sustainable Development (iisd.org)
Making transition plans just: how to embed thejust transition into financial sector net zero plans Grantham Research Institute on climate change and theenvironment
Robins, N. and Rydge, J. (2019) Inevitable Policy
Response: Why a just transition is crucial for effective
climate action [Online]. Available at https://www.
unpri.org/inevitable-policy-response/why-a-justtransition-is-crucial-for-effective-climate-action/4785.
article#:~:text=Managing%20the%20Process%20
of%20Change,now%20and%20into%20the%20future(Accessed 22 August 2022).

VI.

How Just Transition can help deliver the Paris
Agreement | Climate Promise (undp.org)

VII.

The Just Transition Mechanism (europa.eu)

VIII.

"A Just Transition in Emerging Economies" - Remarks by
Mr Ravi Menon, Managing Director, Monetary Authorityof Singapore, at Institute of International Finance Annual
Membership Meeting via Video Conference on 12
October 2023 (mas.gov.sg)

IX.

X.

XI.

XII.

https://www.business-humanrights.org/en/
latest-news/m%C3%A9xico-nuevo-informederechos-humanos-para-una-transici%C3%B3njusta-destaca-regresi%C3%B3n-de-acci%C3%B3nclim%C3%A1tica-y-derechos-humanos/
World Resources Institute (2022) Resources[Online]. Available at https://www.wri.org/
resources/type/update-30018/subtype/snapshot30095?query=&sort_by=field_is_featured&page=0(Accessed 17 August 2022); Robins, N. and Rydge, J.
(2019) Inevitable Policy Response: Why a just transitionis crucial for effective climate action [Online]. Available
at https://www.unpri.org/inevitable-policy-response/
why-a-just-transition-is-crucial-for-effective-climateaction/4785.article#:~:text=Managing%20the%20
Process%20of%20Change,now%20and%20into%20
the%20future (Accessed 22 August 2022).
Why governments need to issue just transition sovereign
bonds and how they could do it - Grantham ResearchInstitute on climate change and the environment(lse. ac.uk)
Just zero: 2021 report of the UK Financing a Just
Transition Alliance - Grantham Research Institute on
climate change and the environment (lse.ac.uk)

Investing in a just transition: a framework for investors

XIII.

2021 Just Transition Assessment | World Benchmarking
Alliance

XIV.

CA100+ companies show 'poor performance' on Just
Transition (responsible-investor.com)

XV.

Just Transition Criteria - a practical tool for fundmanagers | Impact Investing Institute

XVI.

A need for robust just transition planning | Climate
Action 100+

XVII.

Just Transition Criteria - a practical tool for fundmanagers | Impact Investing Institute

XVIII.

Flagship Report: World Employment and Social Outlook:
Trends 2018 (ilo.org)

XIX.

The-net-zero-transition-what-it-would-cost-andwhat-it-could-bring-final.pdf (mckinsey.com)

XX.

The-net-zero-transition-what-it-would-cost-andwhat-it-could-bring-final.pdf (mckinsey.com)

XXI.

The net-zero transition: Its cost and benefits |Sustainability | McKinsey & Company

XXII.

The-net-zero-transition-what-it-would-cost-andwhat-it-could-bring-final.pdf (mckinsey.com)

XXIII.

Flagship report: World Employment and Social Outlook
2018: Greening with jobs (ilo.org)

XXIV.

How Do Corporations Report on the Management andImpact of Restructuring? - DocsLib

XXV.

Unlocking hidden talent through internal mobility |Deloitte Insights

XXVI.

The importance of focusing on jobs and fairness in clean
energy transitions – Analysis - IEA

XXVII.

World Employment and Social Outlook 2018 – Greening
with jobs (ilo.org)

XXVIII.

Skills for a greener future: a global view – Climate Action
for Jobs (climateaction4jobs.org)

XXIX.

What is a green job ? (ilo.org)

XXX.

Green Jobs Taskforce (publishing.service.gov.uk)

XXXI.

Climate-Action-100-Net-Zero-Company-BenchmarkFramework-2.0..pdf (climateaction100.org)

XXXII.

The Methodology for the 2021 Just Transition
Assessment | World Benchmarking Alliance

XXXIII.

The Methodology for the 2021 Just Transition
Assessment | World Benchmarking Alliance

XXXIV.

The Corporate Sustainability Due Diligence Directive(CSDDD): the position of the European Parliament andpotential impact | Loyens & Loeff (loyensloeff.com)

41

XXXV.

XXXVI.

XXXVII.

International Energy Agency (IEA) (2022) The Role of
Critical Minerals in Clean Energy Transitions [Online].
Available at https://www.iea.org/reports/the-roleof-critical-minerals-in-clean-energy-transitions(Accessed 5 January 2023).
World Bank (2019) Climate Smart Mining: Minerals
for Climate Action [Online]. Available at https://www.
worldbank.org/en/news/infographic/2019/02/26/
climate-smart-mining (Accessed 5 January 2023).
For more country-by-country information, please
see the ICMM’s regular reports on the role of mining in
national economies, the most recent version of which
can be found at https://www.icmm.com/en-gb/
research/social-performance/mci-5-2020
International Institute for Sustainable
Development (IISD) (2018) Green Conflict Minerals:
The fuels of conflict in the transition to a low-carbon
economy [Online]. Available at https://www.iisd.org/
publications/report/green-conflict-minerals-fuelsconflict-transition-low-carbon-economy(Accessed 11 November 2022).

XLIV.

https://www.bbc.co.uk/news/world-latinamerica-61161250

XLV.

https://www.mining.com/web/mmgs-troubled-lasbambas-copper-mine-in-peru-still-has-no-timelinefor-expansion/

XLVI.

https://www.mmg.com/our-business/lasbambas/#LasBambas_Blurb

XLVII.

https://www.mining.com/web/mmgs-troubled-lasbambas-copper-mine-in-peru-still-has-no-timelinefor-expansion/XLVIII.

Henisz, W. J., Dorobantu, S. and Nartey, L. J. (2013)‘Spinning gold: The financial returns to stakeholder
engagement’, Strategic Management Journal, vol, 35,
no. 12, pp. 1727-1748.
Franks, D. M., et al (2014) ‘Conflict translates
environmental and social risk into business costs’,
Proceedings of the National Academy of Sciences, vol,111, no. 21, p. 7576ff.

XLIX.

Flood, C. (2019) ‘ESG controversies wipe $500bn off
value of US companies’, Financial Times, 14 December
2019 [Online]. Available at https://www.ft.com/
content/3f1d44d9-094f-4700-989f-616e27c89599(Accessed 27 April 2021).

L.

https://www.business-humanrights.org/en/blog/
after-mixed-results-at-cop-27-litigation-andlegislation-can-advance-the-fight-for-climate-justiceand-a-just-transition/

LI.

Azzopardi, T. (2022) ‘Mexico cancels contract with
controversial EDF wind farm,’ Windpower Monthly,
7 June 2022 [Online]. Available at https://www.
windpowermonthly.com/article/1788903/mexicocancels-contract-controversial-edf-wind-farm(Accessed 5 January 2023).

LII.

Ferris, N. (2022) ‘Why hydropower’s human rights
problem may be insurmountable,’ Energy Monitor,
1 July 2022 [Online]. Available at https://www.
energymonitor.ai/policy/just-transition/whyhydropowers-human-rights-problem-may-beinsurmountable/ (Accessed 5 January 2023).

LIII.

Business & Human Rights Resource Centre(BHRRC) (2020) Renewable Energy & Human
Rights Benchmark: Key Findings from the Wind &Solar Sectors [Online]. Available at https://www.
business-humanrights.org/en/from-us/briefings/
renewable-energy-human-rights-benchmark-2/(Accessed 4 January 2023).

XXXVIII.

XXXIX.

International Institute for Sustainable Development(IISD) (2018) Green Conflict Minerals: The fuels ofconflict in the transition to a low-carbon economy[Online]. Available at https://www.iisd.org/
publications/report/green-conflict-minerals-fuelsconflict-transition-low-carbon-economy(Accessed 11 November 2022).

XL.

The Fragile States Index was developed by theFund for Peace to assess the vulnerability ofstates to collapse. For more information, see
https:// fragilestatesindex.org/

XLI.

The Corruption Perception Index, managed byTransparency International, ranks 180 countries andterritories by their perceived levels of public sector
corruption. For more information, see https://www.
transparency.org/en/cpi/2021

XLII.

XLIII.

UN Environment Program (UNEP) (2009) From conflictto peacebuilding: the role of natural resources andthe environment [Online]. Available at https://wedocs.
unep.org/handle/20.500.11822/7867 (Accessed 11
November 2022); Uppsala Conflict Data Program &Centre for the Study of Civil War. (2008). UCDP/PRIO
Armed Conflict Dataset version 4.0. In Binningsbø, H.
& Rustad, S. A. (2008). PRIO working paper: Resource
conflicts, resource management and post-conflict
peace. Uppsala University & International Peace
Research Institute, Oslo.
https://www.reuters.com/markets/commodities/
exclusive-perus-las-bambas-copper-mine-revivesafter-protest-deal-talks-stall-2022-07-08/

Investing in a just transition: a framework for investors

42

LIV.

LV.

LVI.

1

Business & Human Rights Resource Centre (2021)
Renewable Energy & Human Rights Benchmark
2021 [Online]. Available at https://www.
business-humanrights.org/en/from-us/briefings/
renewable-energy-human-rights-benchmark-2/(Accessed 5 January 2023).
Business & Human Rights Resource Centre (2021)
Renewable Energy & Human Rights Benchmark
2021 [Online]. Available at https://www.
business-humanrights.org/en/from-us/briefings/
renewable-energy-human-rights-benchmark-2/(Accessed 5 January 2023).
Business & Human Rights Resource Centre (BHRRC)(2022) Transition Minerals Tracker: 2021 Analysis[Online]. Available at https://www.businesshumanrights.org/en/from-us/briefings/tmt-2021/(Accessed 3 January 2023).

LVII.

How to End Energy Poverty And Reach Net-Zero
Emissions | World Economic Forum (weforum.org)

LVIII.

blogs.worldbank.org. (2022). The energy shock
could sap global growth for years. [online] Available
at: https://blogs.worldbank.org/developmenttalk/energy-shock-could-sap-global-growthyears#:~:text=Energy%20prices%20are%20now%20
expected%20to%20increase%20by

LIX.

https://www.agora-energiewende.de/en/theenergiewende/the-german-energiewende

LX.

France's 'yellow vest' pledges reach 17 bn euros:
minister - France 24

LXI.

The ‘yellow vest’ movement explained | EmmanuelMacron News | Al Jazeera

jtinvestorstatement16apr2020_625415.pdf (unpri.org).

https://www.lse.ac.uk/granthaminstitute/news/nick-robins-on-the-just-transition/
3
Just Energy Transition Partnerships: An opportunity to leapfrog from coal to clean energy | International Institute for Sustainable Development (iisd.org).
4
South Africa: The latest developments in Just Energy Transition (polity.org.za).
5
Indonesia Just Energy Transition Partnership Launched at G20 - GOV.UK (www.gov.uk).
6
Western nations not ready to finance Indonesian coal plant retirements | Reuters.
7
https://www.unpri.org/sovereign-debt/considering-climate-change-in-sovereign-debt/11894.article.
8
https://www.lse.ac.uk/granthaminstitute/news/why-governments-need-to-issue-just-transition-sovereign-bonds-and-how-they-could-do-it/.
9
Just Transition | SSE.
10
It is important to highlight that any calculations provide a rough estimate based on a wide range of assumptions and specific scenarios. Our own climate scenario work shows thatnet zero by 2050 is now unlikely to materialise and the shift to a cleaner society will not be linear. The purpose of this section is not to provide exact estimates of job gains and losses,
but to highlight the most impacted sectors for investors to focus on.
2

11 *
12

Definition of attacks: https://www.business-humanrights.org/en/from-us/human-rights-defenders-database/methodology/.

https://www.weforum.org/agenda/2021/07/renewables-cheapest-energy-source/
https://energy.economictimes.indiatimes.com/news/renewable/fossil-fuel-contributed-20-per-cent-to-indias-annual-rate-of-inflation/97966365#:~:text=It%20is%20now%20a%20
well-known%20fact%20that%20renewables,further%2C%22%20the%20report%27s%20lead%20author%2C%20Carl%20Heinemann%2C%20said.
https://www.nhm.ac.uk/discover/news/2022/september/net-zero-cheaper-and-greener-than-continuing-use-fossil-fuels.html

13

https://www.imf.org/en/Topics/climate-change/energy-subsidies.

14

 ank, W. (2021). State and Trends of Carbon Pricing 2021. [online] openknowledge.worldbank.org. Washington, DC: World Bank. Available at: https://openknowledge.worldbank.
B
org/entities/publication/7d8bfbd4-ee50-51d7-ac80-f3e28623311d.

15

 oudineh, R., & Jamasb, T. (2014). Distributed generation, storage, demand response and energy efficiency as alternatives to grid capacity enhancement. Energy Policy, 67,P
pp.222–231. doi: https://doi.org/10.1016/j.enpol.2013.11.073.

16

 ttps://energy.economictimes.indiatimes.com/news/renewable/fossil-fuel-contributed-20-per-cent-to-indias-annual-rate-of-inflation/97966365#:~:text=It%20is%20now%20
ha%20well-known%20fact%20that%20renewables,further%2C%22%20the%20report%27s%20lead%20author%2C%20Carl%20Heinemann%2C%20said.

17

 ovacool, B.K. (2017). Experts, theories, and electric mobility transitions: Toward an integrated conceptual framework for the adoption of electric vehicles. Energy Research & Social
S
Science, 27, pp.78–95. doi: https://doi.org/10.1016/j.erss.2017.02.014.

Investing in a just transition: a framework for investors

43

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