A social challenge
When we talk about the climate, we talk about it as an environmental issue. In reality, the impact of climate change will have an impact on people’s livelihoods and the society. This goes from a rising sea level and more frequent, severe weather events to job losses and changed consumer behaviour. Investors should keep in mind that in order for the transition to be sustainable, it needs to be equitable and just for all.
Affordability
First of all, the transition needs to be affordable. This is particularly stressed by Sustainable Development Goal 71 which aims to provide affordable and clean energy for all. A direct consequence of the current energy crisis is the struggle of households to pay their energy bills. In addition, the transition is often assimilated with ‘greenflation’, whereby the transition to a low-carbon economy pushes prices up even further. Of course, the current events such as the war in Ukraine are an exceptional shock, but going forward, energy security will significantly influence people’s ability to pay. Availability and affordability of energy will go hand in hand; both will play a role in ensuring that the transition is accepted and that it does not cause social unrest and/or exacerbate social inequalities.
Safeguarding jobs
The transition to a low-carbon economy has implications for many sectors. And as such, the labour market and the skills required will change too. People working in coal mines, on oil rigs or on the manufacturing line for combustion engines will make place for new greener jobs. A just transition means those workers are protected and supported through reskilling and the creation of decent jobs.
On the other hand, the transition creates many opportunities: green growth can also help create new jobs. Research from the International Labour Organisation (ILO) has shown that if we implement the necessary measures towards the Paris Agreement and invest in the circular economy, there could be a net job gain of 18 million jobs by 20302.
An example of such a transition is SSE, a UK-based utility company, that closed it last coal plant in 2020. It supported employees into new areas following the closure: many employees transitioned to work on the station’s decommissioning programme, while some were redeployed to other roles within SSE. Several training courses were delivered ahead of station closure to redundant employees, as well as support for redeployment in alternative roles in new sectors3.
Respecting human rights and local communities
The transition to a low-carbon economy implies a transition from the era of oil to an era of metals and rare earths. Indeed, the transition will require colossal amounts of cobalt, copper, aluminium, nickel and lithium, to name a few. These materials are necessary for electric-vehicle batteries, solar-panel components and cables to link offshore wind farms to the grid.
Many of these materials are found in low-income countries and their extraction brings environmental and social risks (also see the Thematic Update ‘The material challenge’). Human-rights abuses in mining operations including forced labour and child labour are unacceptable. Health and safety issues in mining operations as well as land grabs are additional risks. Also, local (indigenous) communities need to be consulted prior to major projects.
The era of metals
In the era of metals, demand for new technologies, in particular by developed countries, should not bring new human-rights abuses in low-and-middle-income countries, as we have already seen with fossil-fuel extraction in the era of oil. This is also why many companies are looking into circular opportunities to limit dependence on virgin - and thus new - materials. The partnership between Veolia, Solvay and Renault is a good example of industry collaboration to extract chemicals and dismantle batteries for recycling, in order to reduce the need for new extraction4.
In order to tackle climate change, there is no doubt that the transition needs to accelerate. As investors, we can play an important role in supporting this transition. However it also means we need to proactively consider the social challenges that come along with it and seek to address those.
Esmé van Herwijnen
ESG Analyst
Sources
1 The UN has established 17 development goals (SDGs) in the fight against extreme poverty, inequality, injustice and climate change.
2 International Labour Organization Frequently Asked Questions on just transition (ilo.org)
3 SSE Just transition strategy just-transition-strategy-sse-final.pdf
4 Solvay press release, 2021 Groupe Renault Joins EV Battery Recycling Consortium | Solvay