Just zero: 2021 report of the UK Financing a Just Transition Alliance

In November 2020 more than 40 banks, investors and other financial institutions joined forces with universities, civil society and trade unions to launch the Financing a Just Transition Alliance, the first grouping of its kind in the UK. In this report the Alliance sets out what the delivery of a just transition in the UK will require, highlights initial efforts by leading financial institutions towards achieving a just transition, and points to what is needed to achieve system-wide change. While the Alliance and this report focus on the UK, the report also draws out implications and possible applications for the international context.

Headline messages

• Reallocating capital to achieve net-zero greenhouse gas emissions can also drive more and better-quality jobs, revitalise communities and reduce inequality in the UK, linking the just transition and levelling-up agendas.
• Financial institutions can play a significant role by fully integrating the environmental and social dimensions of the transition into their policies and decision-making.
• The Financing a Just Transition Alliance has focused over the past year on the relationships between finance and business; place-based financial action; and the policy frameworks that are needed to deliver the systemic change required for a just transition.

Summary of recommendations

The report makes recommendations for action across three priority areas, finance, place and policy:

Finance

• Strategy and leadership: Embed the just transition into climate strategies and financing plans, supported by the Board, and signal the importance of the just transition internally and externally.
• Engagement: Integrate the just transition into the engagement on corporate net-zero plans between investors and the companies they hold, and between banks and the customers and clients they lend to. This extends to dialogue between financial institutions and other stakeholders such as workers, trade unions, communities, and civil society.
• Capital allocation: Actively seek to finance those companies committed to positive social impact for workers, communities and consumers on the road to net-zero. Make it clear to potential investees and clients that these factors will be included in the firm’s appraisal and due diligence policies for investment and lending. Develop new mechanisms that are specifically aligned with a just transition, particularly for place-based investment.
• Policy dialogue: Encourage local and national policymakers to put in place the policy frameworks that can scale up financing for the just transition, covering real economy frameworks as well as public finance and financial policies.
• Delivering impact and measuring contribution: Include just transition factors in the way that financial institutions deliver positive social and environmental impacts at both the asset and system level, and report these contributions to their clients and stakeholders in public disclosures.

Place

• SME support: Provide blended financial and non-financial support on the just transition to SMEs in local areas.
• Innovative local solutions: Develop local climate finance hubs as a way of connecting the demand and supply of capital for net-zero and the just transition.

Policy

i) Place the just transition at the heart of net-zero policies:

• Make the just transition a core element of the implementation of the Government’s Net Zero Strategy.
• Implement the recommendations of the Green Jobs Taskforce.
• Establish a Just Transition Commission.

ii) Design financial policies to support the just transition:

• Incorporate fairness and social considerations into fiscal policy for climate action.
• Connect the twin objectives of the UK Infrastructure Bank in operational delivery.
• Harness the British Business Bank to support SMEs through a just transition to net-zero.
• Deliver social co-benefits through the UK’s green sovereign bond programme.
• Use the social value framework in public procurement to boost market uptake of the just transition to net-zero.
• Harness financial standards and regulation for the just transition, including in terms of disclosure.
• Strengthen the social dimension in the UK’s updated Green Finance Strategy, particularly in terms of place-based investment.