By Nabylah Abo Dehman, Human Rights and Social Senior Specialist, PRI, and Aldo Bonati, Corporate Engagement and Networks Manager, Etica Sgr.
Since the publication of the guide for investor action on the just transition in 2018, more than 160 investors have signed on to the investor statement of commitment to the just transition. At the global level, PRI signatories have sought to turn this commitment into practice by taking part in the PRI International Working Group on the just transition to learn from peers and experts how they could take meaningful steps to incorporate the just transition into their investment decisions, stewardship activities and public advocacy.
As highlighted in the guide, climate change is primarily a global challenge, but the implications of the just transition play out at national and local levels. Therefore, in line with the recommendations of the guide to address the implications of the transition to a low-carbon economy at the national and local levels, many investors have also since started to take part in location-based initiatives such as the French Finance for Tomorrow’s taskforce on the just transition and the UK Financing a Just Transition alliance.
The guide has since been translated into French and Spanish to encourage local investors to take action and last week—to mark the publication of the translation of the guide into Italian—the PRI organised a launch event during the Sustainability Week of Borsa Italiana where we presented the recommendations of the guide and heard the insights of three local investors, namely, Aldo Bonati, Corporate Engagement and Networks Manager at Etica Sgr; Dario Mangili, Head of Sustainability at Impact SIM and Lucia Silva, Group Head of Sustainability and Social Responsibility at Generali; and the perspective of a corporate with Anna Villari, Head of Sustainability Development at A2A.
Below is the example of how Etica Sgr has been working on translating its early commitment to the just transition agenda into its stewardship activities:
Since 2000, Etica Sgr has focused exclusively on sustainable and responsible investments via mutual funds, engaging companies on environmental, social and governance (ESG) issues. Following a presentation on the just transition at PRI in Person 2018, Etica signed the investor statement to support a just transition on climate change and in 2019 joined the PRI-coordinated investor working group on the just transition.
If companies disregard the consequences—for employees, suppliers, customers, and local communities—of adapting their business model to a low-carbon economy, they and their investors will be exposed to risks that can amplify the volatility of their stock price. Developing a timely adaptation strategy will also help smooth the social consequences of the transition.
Etica Sgr has been asking investee companies questions on the just transition and tracking their answers in order to:
- make companies aware of investor expectations around the just transition;
- collect examples of actions undertaken and best practices to benchmark peer companies;
- refine their engagement approach on the just transition.
Etica Sgr introduced the topic of the just transition in their engagement framework under the systemic issue of climate change, committing to include workforce and community issues in climate-related engagement on corporate practices, scenarios, and disclosures.
After developing a set of questions linked to the social dimension of the ESG analysis, and to SDG 8 on promoting sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all, Etica Sgr have talked about the just transition to 17 companies, from a variety of sectors, across seven countries.
In many cases, the first goals of the dialogue were gauging companies’ just transition awareness levels and investigating whether considerations on workforce were included in their climate policies and practices. The dialogue also focused on potential lay-offs due to climate transition, and strategies to limit the negative impact on employees, such as reorganisation plans and re-training programmes.
All the companies engaged responded. Most declared a generic commitment to avoid cutting jobs as a result of the transition. In a few cases, companies adopted early retirement plans, while most developed training programmes to enable employees to learn new skills and adapt to emerging business needs.
The quality of companies’ responses was scored according to a standardised evaluation grid. The company score measures the average assessment of all the questions raised during the year on just transition. It is based on three dimensions:
- timeliness (n. of days from question to company answer)
- completeness (% of questions answered)
- quality (measured on a 0 to five scale based on analyst assessment of the response)
At the beginning of the dialogue the score for companies belonging to sectors other than utilities and energy was higher, showing their greater emphasis on developing policies and statements. However, at the end of 2019, as during the year the dialogue shifted its focus on questions about transparency on actions undertaken and their outcome, the average score for utilities and energy was 10 percentage points higher than that of other sectors, showing that those companies most exposed to energy transition risks were more prepared to address just transition issues and highlighting the power of dialogue to identify hidden risks beyond a box ticking approach.
Takeaways from the engagement:
- In order to facilitate investors’ engagement and companies’ action, it would be valuable to see the just transition integrated into an internationally adopted certification standard.
- It is also important that initiatives on the just transition do not neglect sectors less obviously exposed to the climate transition, as in practice climate change affects every sector.
You can sign the statement of investor commitment to the just transition here and request to join the investor working group on the just transition through the Collaboration Platform.
If you want to share your insights on how to approach the just transition, get in touch with firstname.lastname@example.org.
This blog is written by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories.Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the blog authors write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed on this blog constitute financial or other professional advice.If you have any questions, please contact us at email@example.com.