UK finance sector sets out how net zero can deliver social progress across the country

The urgently needed shift to a net zero economy in the UK must be accompanied by a clear strategy to maximise its social opportunities and minimise the social risks, according to the new report from the Financing a Just Transition Alliance, a coalition of 40 banks, investors and other institutions.  Prepared by a team at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science (LSE), the Just Zero report shows how financial institutions can take practical action to support a just transition, so that workers and suppliers, communities and consumers in all parts of the country benefit from this process of transformational change. 

The just transition was highlighted in the 2015 Paris Agreement and has since gained increasing traction amongst governments, businesses, trade unions and communities as a critical enabling factor for rapid climate action. It means focusing on the needs of those in high-carbon sectors who could be vulnerable to change as well as realising the strategic potential to create more and better quality jobs in the growing net zero economy. 

The Just Zero report focuses on three priority areas where financial institutions such as banks and investors can make a real difference. Firstly, it looks at financing a just transition in British business.  Secondly, it deals with financing a place-based just transition. Thirdly, the report covers supporting the policies to scale up financing for the just transition.  

Building on the UK Government’s newly-published Net Zero Strategy, the policy recommendations include calls for the implementation of a Green Jobs plan to achieve a just transition for workers in the high carbon economy and developing attractive careers in the green economy with good working conditions.

The report also asks for the establishment of a UK-wide Just Transition Commission to embed issues of fairness into policy making, particularly the regional dimension; and for the deployment of the UK Infrastructure Bank and the British Business Bank to lead the process of financing net zero so that it delivers positive social impacts for both infrastructure projects and SMEs.

The authors make a case for strengthening financial regulation and standards so that the just transition is incorporated into net zero transition plans from business and the reporting of social performance becomes mainstream.  The report also calls for the development of local climate finance hubs to connect place-based demand for capital with the supply of funding from banks, investors and the public sector.

Prof Nick Robins, at the Grantham Research Institute on Climate Change at the Environment at LSE, and lead author on the Just Zero report, said:

“In the UK, the just transition can best be seen as the policy glue that connects net-zero with the Government’s levelling-up agenda. It’s not only the right thing to do and necessary also to build public support for bold climate action, but for financial institutions it’s also strategically smart as it will build stronger and more resilient investments.”

Bob Wigley, Chair of UK Finance, said: 

“Financing a just transition to net zero is a top strategic priority for UK Finance’s members and this report underlines the importance of taking into account the needs and impact on wider society during this process. Engaging communities and businesses is not only essential to delivering challenging targets progressively and effectively but also ensures that the risk and opportunities are fairly distributed. The important recommendations provide an agenda for change for us all, including households and communities the length and breadth of Britain.”

Doug McMurdo, Chair, Local Authority Pension Fund Forum, said:

“Pension funds should consider any factor financially material to the performance of their investments, including climate change and with that the need for a fair and just transition. Investors, such as local authority pension funds, are already using shareholder engagement to get the companies they invest in to support a just transition to net zero, and this report shows why and how investor action needs to intensify in the year ahead.” 

Ingrid Holmes, Executive Director, Green Finance Institute, said: 

“The biggest financial burden for future generations is not spending now on the just transition. This report shows how both public and private finance can play their role in bringing together net zero and levelling up, by mitigating social risks and leveraging social opportunities in the transition to a low carbon world.”

Paul Nowak, Deputy Secretary General, Trades Union Congress (TUC), said: 

“A just transition is essential to successful climate action. The financial sector needs to play their role – by building in worker voice, supporting investment and prioritising skills development and retraining. Green jobs should be good jobs and decision-makers in finance share responsibility to make this happen.”

Sabrina Muller, policy analyst at the Grantham Research Institute on Climate Change at the Environment at LSE, and a co-author on the Just Zero report, said:

“Place-based finance is a critical part of delivering a just transition across the UK. The report profiles first examples of financial innovation to enable stronger climate action at the local level. Deepening this will be a key priority in the next phase of the Alliance’s work.”

The Just Zero report contains nearly 20 case studies of financial action on the just transition as well as a set of recommendations both for financial institutions and for the UK government.

In relation to financing a just transition in British business, banks and investors want to finance companies which are committed to a net zero future, one that is delivered through high social standards. For example, investors are now including the just transition in their shareholder engagement activities with business and producing new corporate commitments as a result.

On financing a place-based just transition, the report argues that in a regionally unequal economy such as the UK, the net zero transition needs to be shaped so that it responds to the specific needs and ambitions of places across the country. Financial institutions can back this place-based action, for example, by supporting a new generation of local climate bonds.

In looking at the policies to scale up finance for the just transition, the report finds that government policies are also needed to provide the incentives, rules and public finance to scale up net zero action that is fair for all. The UK Government has already issued the world’s first sovereign green bond that will report on its social co-benefits. 

The Financing the Just Alliance (FJTA) was established in November 2020 when over 40 banks, investors and financial institutions joined forces with universities and trade unions to translate the growing commitment to a just transition across the financial sector into real world impact. The Just Zero report will be presented at the COP26 Climate Summit in Glasgow and includes a section focusing on the international dimension of financial action, focusing on developing countries. 

To see the study, or for interviews with the authors, please contact Anna Ford on a.ford1@lse.ac.uk or gri.media@lse.ac.uk.  

Notes to editors

• The Grantham Research Institute on Climate Change and the Environment was established in 2008 at the London School of Economics and Political Science. The Institute brings together international expertise on economics, as well as finance, geography, the environment, international development and political economy to establish a world-leading centre for policy-relevant research, teaching and training in climate change and the environment. It is funded by the Grantham Foundation for the Protection of the Environment, which also funds the Grantham Institute – Climate Change and the Environment at Imperial College London. www.lse.ac.uk/grantham/

• Members of the Financing the Just Transition Alliance include (* indicates observer):  Abundance Investment, Aberdeen Standard, Aviva Investors, Barclays, Belfast Climate Commission, Big Society Capital, Bridges Fund Management Limited, British Business Bank, Brunel Pension Partnership, CANDRIAM, CCLA, CDC*,Charity Bank, Church Commissioners, Church of England Pensions Board, Climate-KIC, Ecology Building Society, Edinburgh Climate Commission, the international business of Federated Hermes, Finance Innovation Lab, Friends Provident Foundation, Green Finance Institute, HSBC UK, Impact Investing Institute, Institutional Investor Group on Climate Change, Investor Forum, L&G, Lloyds Banking Group, Local Authority Pension Fund Forum, Nationwide, NatWest, Principles for Responsible Investment, Pure Leapfrog, Rathbone Greenbank Investments, Responsible Finance, Royal London Asset Management, ShareAction, South West Mutual Limited, Thirty Percy Foundation, Triodos Bank UK, TUC, UK 100, UK Finance, UKSIF, Unity Bank, Yorkshire and Humber Climate Commission.