A Just Energy Transition Takes an Ecosystem

Despite these challenges, leaders have an opportunity to build a sustainable, low-carbon, job-rich path to net zero without leaving anyone behind. Advancing just energy transition goals requires close collaboration across a complex ecosystem of actors. (See the exhibit.)

Here are some no-regret actions stakeholders can take to accelerate a fair and just energy transition.

Companies

Organizations have a crucial role to play in protecting the workforce, responsibly retiring carbon assets, catalyzing climate finance, and taking a leadership role in driving a just energy transition. Some important things they can do include the following:

• Focus on people. Companies should plan for a just transition that includes pathways for retaining, retraining, and redeploying workers. When firms decommission power plants, for example, they can forge partnerships with educational institutions to support upskilling and reskilling opportunities for their employees. For instance, utilities in Italy and South Africa have repurposed energy facilities for renewable generation and developed training facilities to support reskilling as part of their just energy transition strategy.
• Support socioeconomic development in affected communities. Companies can create a plan to responsibly convert, retire, or sell carbon-intensive assets while supporting sustainable local development and protecting impacted communities. Rather than merely shifting emissions responsibility from one company to the next, leaders should consider the net societal and environmental impact of their portfolio decisions and strive for positive results. When decommissioning fossil-fueled power plants, companies should partner with local governments, nonprofits, and communities to identify alternative economic development opportunities that benefit the area. This step, combined with seeking opportunities to repurpose decommissioned facilities and land for renewable energy, would ensure the best outcomes for local communities. ACEN, an energy company based throughout Southeast Asia, collaborated with the Asian Development Bank to retire its South Luzon coal plant 15 years early and reinvest proceeds into renewable generation.
• Address global climate financing barriers. Companies should collaborate with investors and DFIs to encourage the creation of innovative financial products. They can also build partnerships and coalitions to improve risk-return profiles, address scale challenges, and improve visibility into the pipeline of bankable projects. Tata Power, India’s largest integrated power company, collaborated with the Rockefeller Foundation to launch microgrid developer and operator TP Renewable Microgrid, which is set to build more than 10,000 microgrids that will provide affordable, reliable, and clean electricity to more than 5 million homes in rural India.
• Communicate frequently and transparently. Leading companies are sharing plans for an equitable transition and publicly announcing progress toward meeting those goals. They are also sharing best practices with industry peers and other organizations. In 2021, SSE, a UK energy supplier, published a just transition strategy that outlined its own 20 commitments, in addition to sharing 10 recommendations for industry and governments to support workers as they transition from high-carbon careers to low-carbon ones.

Governments and Regulators

Governments and regulators have an important role to play in a just transition. Actions they can take include the following:

• Support affected communities and workers. Governments should collaborate with companies and social groups to identify local and regional employment alternatives for affected communities and design compelling transition plans focused on employment, sustainable economic development opportunities, and protecting livelihoods. Direct investments and subsidies can provide short-term security for displaced workers and mitigate unemployment. For instance, Australia pledged more than AUD$300 million to support workers and economic development after the closure of the coal-fired Hazelwood Power Station in 2017, dedicating funds to support retraining, offer job-seeking assistance, and incentivize employers to hire displaced workers.
• Leverage investments, policies, and incentives to support and accelerate a just energy transition. Governments should invest in modern transmission and distribution infrastructure, along with planning and permitting improvements, while promoting energy security and access. At the same time, they can enact policies and financial mechanisms that incentivize climate investments. They can do this by issuing sovereign green bonds linked to equitable transition principles, for example, or by setting up a just energy transition fund. The EU has set up the €17.5 billion Just Transition Fund to be deployed through 2027 in the form of direct grants to EU regions that are most affected by the transition. Additionally, the Loss and Damage Fund, established by the UN in the wake of COP 27, mobilizes financial assistance for developing countries to compensate for loss and damage caused by heat waves, flooding, desertification, acidification of seas, rising sea levels, and other climate-related challenges. While this is a positive step forward, more progress is needed.

Investors and DFIs

Investors can embed just transition principles into investment criteria and lead the way to scale up climate financing, while national and international DFIs—including multilateral development banks—can help address inequities in global climate finance. More specifically, these players can do the following:

• Leverage metrics. Investors should focus on building tools that assess companies through a just transition lens—and incorporate findings into investing and capital allocation decisions. The investor-led initiative Climate Action 100+ developed a Net Zero Company Benchmark assessment tool that measures company disclosures on climate change-related issues and evaluates actions that companies are taking to reduce emissions. In 2022, they integrated a just transition indicator into their benchmark disclosure framework.
• Scale up global financing and address funding gaps in developing economies. Investors can also support efforts to integrate climate-related factors into risk models, quantify the cost of inaction, and collaborate with companies, policymakers, and NGOs to overcome barriers to deploying private capital. To make an even bigger impact, DFIs should shift away from large scale, conservative investments with well-forecasted returns and embrace smaller, proof-of-concept investments backed by blended finance. To address funding gaps for developing economies, DFIs and philanthropies can increase grant funding or enable debt financing without requiring government guarantees. For example, to scale climate funding in Asia, the Asian Infrastructure Investment Bank and the Global Energy Alliance for People and Planet recently entered into a $1 billion strategic investment partnership that identifies opportunities to co-finance green energy transition projects and mobilizes private capital in emerging economies in the region.

NGOs and Partnerships

NGOs, development organizations, research institutes, and coalitions can do a lot to foster just transitions. Some examples include the following:

• Focus on metrics and reporting. These groups can drive the development of just transition standards and advocate to improve the rigor and transparency of related metrics, tracking, and reporting. The World Benchmarking Alliance, for example, assesses 450 companies in high-emitting sectors on their contribution to a just transition by tracking what they are doing to support workers, communities, and the most vulnerable while making efforts toward low-carbon goals.
• Address barriers to scaling climate financing. Partnerships can support collaborations between investors, regulators, and private actors to scale up climate financing. Coalitions can also build visibility into green project pipelines, facilitate funding for smaller projects, and improve risk-return profiles. To unlock new investment opportunities, the UN’s High-Level Climate Finance Champions Team identified more than 100 adaptation and mitigation projects across five regions and connected them to potential investors, demonstrating the viability of small-scale bankable projects.
• Raise awareness and advocate for an equitable and fair energy transition. These groups have a unique opportunity to promote social dialogue, draw attention to equitable-transition considerations, and advocate for policies that protect at-risk workers and communities. For instance, the Grantham Research Institute on Climate Change and the Environment proposed a new category of bond—called the just transition sovereign bond—that governments can issue to support green recovery and social renewal during the energy transition.