Investors see the value in the just transition
Supporting the world’s net-zero journey is not only the right thing to do, but it is an ‘intrinsic part’ of an investor’s fiduciary duty
The 48th G7 Summit recently took place amid the rolling mountains of the Bavarian Alps and one of the most pressing matters discussed by political leaders was climate change – in particular, the just transition.
“Just Energy Transition Partnerships (JETPs) have the potential to leverage support and assistance to developing countries for decarbonising energy and industrial sectors, transparency, including through financial, technical capacity support and technology transfer development and deployment depending on their level of climate ambition,” said the G7 leaders in a joint statement.
Indeed, providing the financial means could be key to unlocking the just transition.
Gemma Corrigan, head of public policy at investment manager Federated Hermes agrees.
“Governments hold the primary responsibilities for delivering and coordinating a just transition but investors can also play a significant role by fully integrating the social dimension into the way they allocate capital as part of net-zero strategies,” says Corrigan.
“Managing transition risks and strengthening human and social capital are critical to our ability to create sustainable wealth for our clients. This is also fully consistent with longstanding commitments to social and human rights standards.”
We see investing in the just transition as an intrinsic part of an investor’s fiduciary duty. It is both a way to consider risk, backing those businesses [in] decarbonising their assets over time, as well as considering return, investing in those businesse
Fiduciary duty
Not only is a just transition beneficial for decarbonisation, but supporting businesses in their net-zero journey will generate net profits as time goes on and critically, from an investor perspective, act as a return generator too.
“We have a broad view that the just transition will see the externalities of corporate activities being increasingly valued and priced in by the market,” says Stephanie Niven, portfolio manager of global sustainable equity at investment manager Ninety One.
“Because of this, we see investing in the just transition as an intrinsic part of an investor’s fiduciary duty. It is both a way to consider risk, backing those businesses [in] decarbonising their assets over time, as well as considering return, investing in those businesses providing the solutions and products needed to drive that just transition.”
Niven adds: “The coming decade looks likely to be one of the most exciting, and important, decades for active investors the industry has seen, as the sector grapples with the challenges of understanding the nuances of sustainability.”
“We consider aspects of materiality, intentionality, and measurability when we engage with management teams and really push for that real-world change. It’s less about those quick-turn, fast metrics when we engage; it’s about building up trusted relationships and being [the] shareholder companies want to see on their register, pushing for practical, long-term, impactful change.”
Aela Cozic, sustainable investing and portfolio manager at Fidelity International, concurs. “As responsible stewards of capital, we have a fiduciary duty to protect our clients’ capital and deliver long-term sustainable returns.”
“We aim to understand the non-financial impacts of our investment decisions on investee issuers and their broader stakeholders, including employees, suppliers, customers, regulators and communities.”
Cozic continues: “We have developed proprietary sustainability ratings and incorporated these into our research and investment decision-making process. This is also included in the investment objective and compliance monitoring of a growing number of our strategies.”
Monitoring progress
With investors seeking to put capital into firms that have carbon-reduction targets, the need to monitor the overall carbon emissions is vital. Much like climate reduction, the requirement for companies to disclose how they are actively engaging in and driving the transition will be crucial for its success.
“Through engagement with investee companies, we encourage them to embed social considerations into their climate change mitigation plans,” says Corrigan.
“We are involved in several initiatives that have been developing just transition indicators including CA100, WBA [World Benchmarking Alliance] and LSE's FJTA [Financing a Just Transition Alliance], which have developed a framework for due diligence combining governance (strategy, policy dialogue and transparency) and stakeholder dimensions such as workers, communities, supply chains and consumers.”
Facilitating a just transition is not only a moral imperative but a fiduciary duty now and an essential ingredient to investment performance – scaling sustainable investment will be paramount to meeting the world’s climate-reduction targets.
