An initiative to bring social considerations into the decision-making process for climate investments has been launched by the Impact Investing Institute with the backing of 18 financial institutions
- Launched by the Impact Investing Institute, the Just Transition Finance Challenge aims to encourage the mobilisation of more public and private capital into investments that support a just transition to net zero
- 18 financial public and private institutions have signed up for the challenge
- Together, they are developing a set of criteria to underpin a new ‘Just Transition’ label for investment products
- More details about the new label are planned to be released ahead of the COP27 climate change conference taking place in Cairo in November
The Just Transition Finance Challenge, launched by the UK’s Impact Investing Institute, is the latest initiative to encourage the industry to take a more holistic view of climate investments by bringing in social, diversity and local employment issues to their decision-making process.
The initiative aims to lay the groundwork for a ‘Just Transition’ label to show that investments take into account what the institute considers to be the three critical elements of a just transition: climate and environmental action, improved social-economic distribution and equity, and more input for local communities in decision-making processes related to investments. To be awarded the label, investors would need to demonstrate that all three of these criteria have been met.
Institutions whose assets and assets under management exceed £3.6tn have signed up for the challenge. These include Scottish Widows, Fidelity International, Schroders and its impact investor BlueOrchard, BNY Mellon, Bridges Fund Management, the UK Environment Agency Pension Fund, and development finance institution British International Investment, among others.
David Krivanek, the Impact Investing Institute’s programme manager for international development and lead on the challenge, said that not only was there not enough capital flowing from the private sector to meet global net zero targets, but social considerations were being neglected.
“The energy transition will have major social consequences, especially in emerging markets, so there is a need to pay specific attention to these. At the same time, given the amount of capital and political attention focused on the transition agenda, there is an opportunity to benefit groups and communities that have been left behind, for example by making sure jobs are available in the renewables industry,” he told Impact Investor.
“We’re also trying to encourage investors to think a bit more deeply about ways to actually involve the communities that will be impacted by their investments the process” he said.
The plan is to unveil more details of how the ‘Just Transition’ label would work ahead of the COP27 climate change conference in Cairo, which starts in November 2022, with the first set of just transition Investment products being announced at the COP meeting itself.
In the meantime, the institute says it will support the founding participants to include these criteria in the design of financing vehicles and investment mandates across asset classes and both developed and emerging markets. This will be augmented by expertise on from Deloitte, the Grantham Research Institute, the London School of Economics and others.
The institute hopes the initiative is pushing at an already open door.
“There are investment products currently on the market that are already aligned with the objectives of the label, across asset classes and geographies, so this is definitely practice that already exists,” Krivanek said.
What might a fund earning a Just Transition label look like? The framework is still being developed, but Krivanek said a generic example might be an infrastructure fund investing in renewable energy, whose projects and big ticket sizes make it attractive for institutional investors, but where there is a strong focus on creating jobs in the local community, with targets for employing women and people from indigenous or marginal communities.
Tracking would be in place to measure progress, while a community advisory board could meet every few months to monitor a project. Best practice as defined by the International Labour Organisation could be built in, he said.
The challenge has taken inspiration from a number of existing initiatives where organisations have come together to tighten up investment practices, such as 2X Collaborative, which grew from the 2X Challenge initiative to invest in women, launched at the 2018 G7 meeting, as well as the French-based Finansol label developed more than 20 years ago to promote social investment.
“It’s a model that has been shown to be a really good way to mobilise a coalition of the willing, who want to come together as investors to identify and share best practice and provide a framework that could be used as a blueprint for the wider industry,” Krivanek said.