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Corporate climate investment: Lessons from the field

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15 February 2024

The UN Global Compact CFO Coalition for the SDGs has a unique mission and playbook: integrating corporate finance into the field of sustainable finance, a discourse and practice which conventionally centers on the financial sector. Last year I supported the Coalition in a keystone project about corporate investment in climate change mitigation, including the report linked here. In the post below I share some reflections on the project and the bigger project that it represents. 

Aaron Cantrell
Executive Director, Future Nexus

Three observations

Last year I worked with the UN Global Compact CFO Coalition for the SDGs on a project about corporate investment in climate change mitigation; i.e., the actual investments corporations were making in mitigation, but also the whole set of standards, practices, tools, and ideas they use for climate investment. It was a highly rewarding project: I worked with a great team, I learned a lot, I met many thoughtful and committed CFOs and corporate finance teams, I got to speak on the topic at the UN General Assembly SDG Investment Forum, and it ended with a report that we were all proud of.

The report was published during the middle of COP. I didn’t post much about it at the time: it did seem pointless to add to the eruption of announcements and publications and ideas coming from COP and its six degrees. But I also knew that when a project like that finishes, I like to acquire a little distance before I say something about it. I’d just written so much about the topic, so it’d be an odd time to have a great new idea! At this point, the project is no longer news. That means it’s time to think about its meaning and its lessons, both for me and for the ‘bigger project’ it represents. 

So, what did I learn? And what will it take to make this project a comma, not a period, in the bigger question of the role of corporate investment in climate action? These look like separate questions, but I can only answer them together. I have three observations:

  1. AI is on a rampage
  2. Climate change mitigation happens not in the financial system but in the capital stocks—all of them
  3. Deep convictions, high ambitions, and (best-laid) plans are no match for macro-financial conditions

AI is on a rampage

A couple years ago, in a project about the role of business in a just transition, the knowledgeable, well-esteemed, and manifestly committed human rights director of a large Italian company told me that if we really want a just transition, we have to think about the green revolution and the digital revolution together. Until last year, I did not appreciate the full meaning of her words. 

Last year’s project opened a window for me—through dialogue, research, and events—onto the investment practices of large corporations as regards climate change mitigation. We did not exchange confidential information, so the especially curious (you, dear reader?) will have already known what I am about to say. This is what created the double shock: the immensity of the trend coupled with its coming all at once for me. AI IS ON A RAMPAGE. 

We and these teams, we were talking about climate, but really we were talking about computers…and machine learning, and sensors, and satellites, and ‘networks’ that no longer run only on wires. At the nexus of hardware and software, it’s not just computers that get smarter. Entire production facilities, buildings, value chains, and infrastructure assemblages are showing signs of intelligence. Even the very emblem of the energy transition—the solar panel—is somehow a dud until it’s attached to a digital technology that can make it all work (‘smart grids’). I have to admit, I began to wonder if that thing called the ‘technology sector’ hadn’t become an obsoletism in a landscape where every large company was charging in the same direction toward the three-headed enigma: digitization, digitalization, and digitalizationism. (OK, maybe just one head.) 

Well, folks, buckle up. We’re in this story’s prologue, not Act III, and there are major implications for climate and everything else. How can we understand the implications for climate? Two observations. First, automation and efficiency (etc.) represent tremendous opportunities to abate emissions for every industry, everywhere. But that doesn’t mean it’s going to happen. Adopting these technologies depends on the capacity to acquire or develop them, as well as on human capital and policy environments that support them. The technologies are unquestionably a comparative advantage, which means that, left to the invisible hand, they will drive industry consolidation. It’s not the first time I’ve asked myself if the world would/should tolerate monopoly in principle for the sake of climate action. On one hand, sure? On the other, what about the general equilibrium effects? If competition goes, so does the drive behind the very progress we’re talking about. (Of course, it’s not so simple; monopoly is always relative and never permanent.) And what about the political economy of it all? International, class, race, and gender dynamics are not incidental here. Does your heart bleed red, or only green? 

Second, digitization-as-climate-strategy is necessary and powerful, but we must understand its limits. We still need energy—for everything—even if less. A commitment to climate therefore requires that the arenas and discourses of policy, investment, and commerce face up to the fact. It’s not that they don’t, but soon enough, we’re going to be talking about what’s next, and it would be great if the world has made some general plans for it.

Mitigating climate change happens not in the financial system but in the capital stocks—all of them

My coming of age in sustainability happened in the context of sustainable investment. According to a certain narrative, which is somehow both pure mythology and also reflective of reality, if only because it is collectively performed, investors hold the key to everything. They shift their portfolios and the world shifts. I’m not here to debate this narrative, but I can say that this project helped me construct a different paradigm, or rather, deepened my attachment to a paradigm that began emerging when I was working on President Biden’s climate agenda. The US Government kind of has a portfolio, kind of speaks ESG, kind of uses tools and ideas and principles and strategies and tactics that one would find in the world of private sustainable investment. But only kind of, and yet here it was stepping in to remake the country’s relationship to climate. How? It’s industrial production, stupid!

Never mind the particular choice of tactics (e.g., tax credits), which were primarily decided according to institutional and political constraints. The US Government’s strategy was to transform the capital stock. This is a question of finance, but only secondarily.  Of course, these days, industrial policy is a household name, but it was not long ago that it lost its taboo. In this paradigm, the question is ‘what are we producing and how?’—not ‘what are we financing and how?’ 

The financial sector has, of course, wrestled with this itself, notably in its attempts to answer the question of additionality. ‘What do my allocation decisions actually do?’ 100,000 bucks invested in a green start-up can make a bigger change in the real economy than $100,000,000 invested in a listed company that doesn’t much use the capital markets anyway. Yet, this doesn’t square with the basic sums of investment. There have been impressive efforts to solve the riddle, but the impressiveness of those efforts is more than anything a testament to the riddle itself. If the financial sector is to have a dream of sustaining not just the narrative described above, but indeed its agency per se, this question has to be front and center. 

You see, for a corporation, it naturally is. Corporates invest in financial assets, a lot of them, but where they really shine, compared to financial investors, is when they invest in shiny metal, or brushed metal for that matter, or really any of the things that make the economy actually go vroom, vroom (whrrr, whrrr, increasingly). This project really drove the point home: mitigating climate change means revamping the capital stock; that is, remaking the world of production that actually emits greenhouse gases. 

While the world of production does center on fixed capital, that is not its full scope. To make things go whrrr, you also need human capital, intellectual capital (including intangible digital capital, intellectual property, and organizational capital), natural capital, and relational capital (e.g., the relationships with your customers and suppliers). And so to change the way in which things go vroom, or changing them from vroom to whrrr, means revamping these capital stocks too. People need to be retrained and upskilled; reputation matters; we need more AI, etc. Corporations know all this; they’re often the only ones in the room with operational expertise. It’s just one of those things that goes a bit lopsided when it’s tossed to the financial markets. 

One of the most rewarding aspects of this project was the feeling that our work was making that knowledge just a little less lopsided for investors. Genuine credit is due to the CFO Coalition team, as well as the Climate Bonds Initiative, who share—innovated, even—this conviction that cross-market understanding was less than it could be, and are working hard to link the dots among market participants. With good reason, bond issuance is at the center of this conversation. Probably more than any other instrument, green bond purchases, especially on the primary market, are one of the surest ways an investor can know that its dollars are doing something for climate in the real economy. Financial and impact additionality are both there, and the standards of practice that give evidence of that fact, including through reporting, have achieved their bona fides. These instruments have their limits, of course, especially for financing corporate investments beyond fixed capital, whether that be human capital, or the organizational capital that is required to execute a sustainability strategy. Sustainability-linked instruments are filling that gap to some degree, and their utility is particularly apparent in a few parts of the corporate bond market. Overall, though, it should be the responsibility of investors to remember the fact that mitigating climate change means revamping the capital stocks—all of them—and if their net-zero strategies are to achieve their bona fides, this principle must be the guiding one. 

Deep convictions, high ambitions, and (best-laid) plans are no match for macro-financial conditions

During one of the project’s consultations with the CFO Coalition’s members, I was listening  studiously to the prepared presentation of a corporate CFO when, for a moment so brief it was almost imperceptible, a pang of pure tragedy swept across the CFO’s face. Their words faded mid-sentence into a mumble, and the topic was quickly dismissed. Information theory tells us that the information content of a signal is inversely proportional to its likelihood: I knew that whatever this was, it meant a lot.

The CFO was talking about the interest rate environment. A lot had happened very quickly, you see: COVID, inflation, rate rises…and the implications were literally unspeakable. My recollection of this moment and what it means casts a strong light on the entire project—the ‘bigger project,’ that is. Here we were, doing all that we earnestly could to incentivize and enable the corporate world to take its role as climate investor seriously, but what difference would all the instruments, standards, best practices, fora for knowledge exchange, efforts to remake narratives, regulatory ideas, climate plans, etc., etc., make in a world where financing was too expensive, full stop? How could our hard work not be seen as marginal (and the ‘greenium’ advantage of sustainable finance equally marginal) in a world where central banks can disrupt credit provision so suddenly and severely that corporate investment plans of every variety—climate or no—have to be taken off the table? 

(I am taken by hyperbole, I admit; sustainable finance issuance among Coalition members was actually up YoY in their latest numbers, and their stated plans, even at the peak of interest rates, reflected further growth. And while I do think that the models and tools of modern monetary policy are profoundly misguided, I am not here to debate that point, nor to argue the case for a counterfactual in which policy rates never changed.) 

And yet, while I don’t believe in ghosts, I do believe in elephants. The unspoken is often most important, and the tragedy was real. All along, our work had an unnamed enemy, and the force of that enemy was dwarfing the contribution we were trying to make. 

You see, this doesn’t require imagination, because it is in fact the lived experience of most of the world all of the time. In some sense, it is only the rich countries, centering on those that issue global reserve currencies, that have ‘modern monetary policy’ at all. Outside these privileged few countries, central banks are more concerned about preventing capital outflows and financial crises than controlling inflation or employment. In these countries, lowering borrowing rates to an ‘affordable rate’ is categorically not an option. In this light, what this CFO and many others like them in the developed world experienced in recent years represents a certain leveling with the developing world. For a moment in time, they all shared the sense, which in the Global South afflicts not just private borrowers but also governments, that they simply could not afford the financing required to make the changes they wanted to make. Climate strategies would have to be revisited. 

What is the lesson…for the ‘bigger project’? The discourse has taken a few different directions in response to that question. Before stepping outside this discourse, I will address three of its main channels. Most important among these is the ongoing discussion around reforming ‘global financial architecture’, a term which typically refers to multilateral architecture, Bretton Woods specifically. (When I first heard the term, I balked. I worked in global finance for nearly a decade and, to me, the IMF was the least likely culprit to symbolize ‘global finance’. But then I realized, from the perspective of those for whom my global finance was effectively off limits, multilateral architecture was indeed global finance.) In general, these proposals represent efforts to increase the quantity of finance for developing countries (e.g., capital adequacy reforms to support multilateral development bank balance sheet expansion), including climate finance (a category that the new Loss and Damage Fund tenuously belongs to), improve the terms of that finance (e.g., climate clauses, greater concessionality), and facilitate debt forgiveness for embattled sovereigns.

The second channel includes proposals to reform monetary policy so as to favor climate investment. In addition to the argument for macroprudential regulation that incorporates climate risk, there are a wide range of tools that monetary authorities could potentially employ, including incorporating climate change in policy models, making green bonds eligible for central bank bond purchases, and introducing a green policy rate within monetary architecture, thereby steering credit to climate. In the scenario above, that would mean that even as central banks raised rates to control inflation, our sad CFO would have had access to a below-market rate for the climate investment they were planning. It is a commendable policy idea, but as with ‘low rates’ of any form, the option is a rare privilege.

The third channel is industrial policy. In this scenario, instead of asking the financial sector to lead, the public sector becomes the direct investor. The proposal for Great British Energy, a state-owned energy company authorized and capacitated to lead Britain’s renewable energy revolution, is the most symbolically clear example of this thinking. The US Inflation Reduction Act is a cousin. A ‘submerged’ (à la Suzanne Mettler) cousin: instead of outright ownership and investment planning, the US apparatus is giving out tax breaks.

I am not here to discuss the merits of these policy ideas, except to say that for me they are like band-aids on a mere flesh wound, particularly for the Global South. Even success in channeling more-better multilateral financing to developing countries is likely to sidestep the issue of why these countries are locked out of the LON-NYC-TYO version of global finance in the first place. Avinash Persaud has his nose in the right place, particularly through his observation that ‘macro risks’ for climate projects in the Global South tend to outweigh project risks, empirically. But even an FX guarantee mechanism as he proposed it is a band-aid which itself is bound to bleed. 

The current global encounter with the ills of dependency, exclusion, and inequality is in fact a re-encounter. These questions have been at the center of development economics for decades. However, whereas those ills for so long behaved the logic of national borders, keeping them out of sight for the advantaged, GHG emissions do not. Climate change, and our failure to address it, is a collective failure, a system deficit that we collectively experience, no matter where the emissions themselves are coming from. But unlike those who believe climate finance is capable of solving the issue, I observe a deeper problem, rooted in the macro-financial vulnerability of large parts of the world. “You can’t solve climate without solving global macro,” some friends and I like to say. Glib, perhaps, but it does offer a fresh paradigm for the struggle at hand. Through it we can see that contributions to others’ vulnerability is not risk-free, even if it looks like a risk-off move. And it also shows us that ‘climate finance’ must dig a little deeper, led by an earnest commitment to the principles of just transition. Economic and financial stability, social and institutional resilience, including to climate change, respect for rights and voice, and inclusive access to opportunities will do more for climate action than the highest NCQG we could dream of—in fact it’s our only chance. 

Comment letter to Impact Investing Institute Just Transition Finance Challenge on draft Criteria

Impact Investing Institute – Announcement of Public Consultation

Just Transition Criteria – Draft for Public Consultation

March 20, 2023

Re: Impact Investing Institute Just Transition Criteria – Draft for Public Consultation


Dear Impact Investing Institute,


We are grateful for the work of your organization in the Just Transition Challenge, together with its participants and partners, on building practicable frameworks for steering investment capital to solutions that address climate change holistically; i.e., including through consideration of its socio-economic dimension. We are also grateful for the opportunity to respond to your draft Criteria.

Future Nexus is a research and engagement consultancy based in New York City, with specializations including just transition, sustainable and development finance, industrial policy and public investment, and climate finance. As examples of our work, we have authored guidance for the global private and public sectors on the topic of Financing a Just Transition, on behalf of the UN Global Compact and International Labour Organization, respectively. We have also worked with a broad range of other clients and partners on the topic of just transition, in relation to corporate, financial, and public actors, including the We Mean Business Coalition, the International Organisation of Employers, the U.S. Impact Investing Alliance, the Sierra Club, the Roosevelt Institute, E3G, and the Harvard University Initiative for Responsible Investment. As such, we consider ourselves a key stakeholder in the global development of the discourse and tools related to financing a just transition.

Generally speaking, we find that your draft criteria reflect well the general principles and components of a just transition, and provide a strong basis for the design, evaluation, and communication of investment strategies and products aiming to support a just transition. Below we offer some ideas for your consideration in response to your consultation questions, and conclude with a general comment.

Q1. In addition to the use cases proposed in this section, a robust just transition investment framework can also generate possibilities for improved learning and coordination across investors, within and across regions, and with other stakeholders, including governments. Just as many investors are seeking opportunities for greater coordination in the design and implementation of their climate strategies, for example through Climate Action 100+, it can be expected that investors will seek similar opportunities in their support for a just transition. Achieving the vision of a just transition will depend on lessons being shared, across stakeholder groups, across regions, among investors, and across investment types. Consciously addressing this potential in the design of your framework can improve not only its uptake but also its impact.

Q2a: Generally speaking, we are of the view that although investment-/project-level sustainability performance should be an important criterion for investment decisions, the greatest contributions to just transition will be achieved through coordinated strategies that target structural transformation. Not only do coordinated strategies deliver greater system-wide impact, but they also allow individual investments to achieve outsized impact by identifying and acting on synergies with the actions and strategies of other stakeholders, including other investors and governments.

In specific reference to the question on interlinking KPIs, we believe that key KPIs can be identified and interlinked through reference to broader strategies in which the investment is proposed to play a role. That could include, for example, regional and sectoral transition pathways, as constructed in coordination with governments. Reference to such strategies and related KPIs can improve interoperability, legitimacy, public support, and impact of related investments.

Q2b: As recognized in the three Elements of your framework, just transition comprises both a process (community voice) and outcome dimension, which includes both climate and socio-economic impacts. Generally speaking, we find the linkages between community voice and impacts could be strengthened in your framework. Item ‘g’ on page 14 of your consultation document indicates possibilities in this vein; for example, using Element 3 (community voice) to identify local needs, to be addressed in Element 2. We believe there is significant scope to develop these linkages, not only between Elements 3 and 2, but also Elements 3 and 1, as well as to introduce more rigorous requirements. For example, in addition to evidence of engagement mechanisms, the framework can also recommend or require the disclosure of key results from such engagements, including, potentially, community feedback on the key objectives/KPIs formulated in relation to Elements 1 and 2. In addition, engagement mechanisms can also be an important component of evaluation, and the framework could constructively reflect this, with more explicit requirements or guidance regarding how investors can be expected to respond to key community concerns.

Q3a: We find this approach robust, though, in line with our suggestion above to develop linkages between Elements 3 and 2/1, we also see some scope for providing more direct guidance to investors regarding the best practice or requirement to use engagement processes in Element 3 to inform strategy and indicators adopted in relation to the the ‘Do No Significant Harm’ criteria for the other Elements. It can be difficult for investors to know the primary concerns of local communities, without which knowledge a bona fide assessment of ‘do no significant harm’ is impossible. In the context of this framework, requirements for community engagement can be usefully leveraged to provide insight on and strengthen the strategies for achieving climate and social impact.

Q4a: The proposed approach is robust in principle, though the design of this criterion should also reflect that many just transition-related projects already face substantial constraints on financial and technical capacities, even relative to local climate investments, and therefore limits on financial access. Many of the investments most needed in the just transition may have no impact track record and/or underdeveloped impact frameworks. The investment criteria should reflect the bias that already exists, and potentially even incorporate a manner for investors to meet certain of the framework’s criteria through support for capacity development among investees, in addition to or instead of other impact (measurement) requirements.

In addition to this, we believe the framework could better reflect the seventh Operating Principle for Impact Management: ‘considered exits’. Framework criteria which trigger automatic divestments have the potential to do more harm than good. As above, we suggest that the framework incorporate more scope for engagement and capacity development among investees, as an additional, substantive manner of delivering impact—particularly to prevent unmanaged exits.

Q3b and Q4c: Regarding KPIs for Community Voice, we believe there are interesting lessons to be learned from the realm of public investment. In the United States, for example, obligations to workers and communities are increasingly formulated in concrete terms, as specific criteria/standards for investment, such as requirements for community benefit agreements and/or project labor agreements. These structures are critical for the achievement of key economic, social, and environmental objectives, because they not only provide evidence of early and meaningful engagement with workers and communities, but also ensure that their concerns and objectives are incorporated into investment plans, following negotiation among key stakeholders. These structures might serve as a fruitful template more broadly, for investors seeking concrete ways to design, substantiate, and deliver the socio-economic benefits that matter to local communities.

In conclusion, we would like to reiterate one central principle, which we have come to value increasingly as our work in just transition has deepened, and greater incorporation of which we believe will benefit the uptake and impact of your framework. That is, in essence, that achieving a just transition means achieving a durable and systemic transformation, which depends on broader coordination, and oftentimes on public leadership. Individual investments can play an important part in the vision of a just transition, but their meaning and impact is multiplied to the extent they act as components of broader strategies: strategies which, as relevant, bridge the Global North and South, cut across economic sectors and industries while being coordinated within them, are aligned with regional and national plans, and, perhaps most critically, benefit from the policy levers and tools, the data and perspective, and the social trust of local and national governments.

From our seat, we have seen in many contexts that sustainable and impact investors increasingly agree that structural transformation depends on public leadership. Investors look to policymakers not least for the financial incentives (credit enhancements, tax breaks, etc.) which propel investment in target industries and sectors (and with the right conditions), but also for the coordination of a broad range of policy tools to achieve those goals, including financial and industrial regulation, trade, procurement, and labor policies, and more. Equally importantly, governments play a leading role in devising the development strategies which signal to the private sector and other stakeholders the intended direction of strategic development, through, for example, NDCs and credible regional and sectoral pathways.

Notably, this new sense regarding the expected role of governments is not confined to developed economies, where governments have far greater fiscal capacity to embark on green industrial policy. Rather, it is also increasingly visible in how the climate transition is approached globally, including in the context of Just Energy Transition Partnerships and new expectations for multilateral development finance institutions. In sum, investment is increasingly undertaken implicitly or explicitly in coordination with official plans.

As you seek to build a framework with staying power through what might prove to be a meaningful paradigm shift regarding the desired and even necessary level of coordination between the private and public sectors, especially with regard to economy-wide transition strategies, we believe that the just transition investment framework can and should anticipate and reflect the principle of greater cooperation and alignment between private investment and the strategies, policies, and investments of public authorities. Currently, your proposed framework for strategy-level due diligence mentions investment/issuer engagement with local governments as one aspect to be investigated, and the importance of public/private alignment is highlighted in your real estate-specific guidance. In our view, this represents a good start, but fails to account for the broad and deep importance of this issue across all investments and investment strategies. We believe this issue should receive greater emphasis in the framework, and be built out accordingly with related criteria and KPIs.  

Again, we would like to express our gratitude for your diligent, thoughtful, and constructive work on building a framework for just transition investment. It is a necessary effort, and we are pleased it is in good hands! If you have any questions or would like to discuss any of these points further, I would welcome the opportunity.

Best regards,

Aaron Cantrell
Executive Director

FUTURE NEXUS

Just transition is everyone’s business: Lessons from the field

Introduction to just transition: A business brief
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22 December 2022

Last year at COP26, the UN Global Compact, the International Labour Organization, and the International Trade Union Confederation launched the Think Lab on Just Transition. This year I had the privilege of working with the Think Lab, its partner organizations, and participating companies as author of the Introduction to Just Transition: A Business Brief.

This post is a chance to share that brief with the Future Nexus audience, alongside some personal reflections sparked in the process.

Aaron Cantrell
Executive Director, Future Nexus

Why I'm writing this

Future Nexus was named after the nexus linking the public and private sectors, based on a vision of public-private learning ranging from big sustainability ideas to data standards. But the penchant for systems thinking which inspired that vision has led to several more ‘connective’ specializations. In particular, the connection between environmental and social issues is a central theme in our work with clients.

The interdependencies between people and the planet are increasingly recognized in theory and practice, iconized perhaps by the United Nations Human Rights Council’s 2021 affirmation of the human right to a healthy environment. That climate change and other environmental catastrophes take shape as human crises is no longer a theory or a projection. At the same time, an effective response to climate change is necessarily collective and therefore embedded in social systems. The importance of social systems such as finance and policy has been well-recognized in the climate discourse, and the extent to which these are themselves embedded within slower-moving cultural and economic dynamics is being incrementally revealed.1,2

At the broadest level, a ‘just transition’ is the concept which recognizes the systemic dependencies between environmental and social sustainability, and has some ideas for addressing them in a constructive way. It is relevant for how we address a wide range of environmental issues, including biodiversity, pollution, and climate change. The Paris Agreement itself recognizes the ‘imperative’ of a just transition. The details of what this means and core principles for achieving it are developed in the International Labour Organization’s (ILO) Just Transition Guidelines.3 The ILO Guidelines address specific areas of national policy as well as the equally critical question of building coherence between distinct policy areas and public institutions. Constructing an effective policy environment depends on participation from business and labor, and the ILO Guidelines also address how these stakeholders can most effectively contribute to national policy-making.

An enabling policy environment for a just transition promotes fairness, inclusion, and efficiency in both process and outcome. As the concept of just transition moves ever closer to the center of international climate negotiations, the value of this foundational idea—and of the more specific content in the ILO Guidelines—is also increasingly acknowledged outside the context of public policy. Just transition is emerging as a framework which can help businesses address some of the issues that are underappreciated in more conventional sustainability paradigms—for example, paradigms which separate environmental issues from social ones or which prioritize top-down action over strategies to empower those affected by change.

This year I had the privilege of working with the UN Global Compact Think Lab on Just Transition,4 alongside its partner organizations and participating companies, as the author of two of its Business Briefs. The Think Lab was established in 2021 at COP26 by the UN Global Compact, the International Labour Organization, and the International Trade Union Confederation to drive thought leadership on the role of business in a just transition.

The Think Lab created an opportunity for global leaders on just transition—including from business, finance, civil society, academic, and intergovernmental organizations—to discuss the difficulties that businesses face in the just transition, identify solutions that work, and generalize some of the insights for a broader audience. We borrowed heavily from the wisdom embedded in the instruments and frameworks that exist to guide a just transition, corporate sustainability and responsibility, and sustainable finance, as well as from the wide range of initiatives that support specific dimensions of implementation. The insight of individuals with experience and perspective on the topic was also invaluable.

The Introduction to Just Transition: A Business Brief5 has all the ‘good stuff’: the what’s and why’s and how’s of just transition for business. This post is really just a hook for that Brief. At the same time, a few personal reflections have been stirring in the weeks since we launched the brief, which I thought worth sharing in a less official channel. I call them ‘lessons from the field’. Learned through the diverse interactions with global leaders in the field, these lessons are too unpolished for an official report, but as they continue to mature they will nonetheless shape how I and the organization I lead approach our work to advance a just transition for all.

Lesson #1

Alignment around core principles is critical.

In the context of systems challenges and systems solutions, things get complex quickly. There’s no universal formula for the ‘material interdependencies’ between environmental and social issues.6 There’s also no blueprint for climate transition strategies which are fair and inclusive. The climate transition represents a complex patchwork of the plans and strategies of individual organizations, of economic sectors, of regions and nations (principally led by governments), of the financial system, of workers and labor unions, of civil society, and more. A shared set of principles and standards for the design and implementation of these plans is critical for their interoperability and uptake. In particular, the challenge of defining appropriate metrics for just transition—a crucial aspect of operationalization—depends on a shared framework of principles and objectives.

The guiding principles of a just transition, largely represented in the ILO Guidelines, offers that common baseline. In particular, the recognition that workers and communities should be integral to the process and that the climate transition represents an opportunity to build more equitable and sustainable economies more broadly can facilitate constructive interactions across stakeholder groups, across regions, and internationally. Without this alignment—i.e., some consensus around the terms of a fair process and outcome—what cannot be achieved collectively can hinder what can be achieved collectively. We must prevent this.

Lesson #2

A just transition can promote alignment in at least four dimensions.

Narrative dimension

Where are we—as a people, community, workforce, nation, or family…where are we going? Just transition provides a vision of a future where no one is left behind and where our efforts to combat climate change are not simply passed on as costs to unlucky segments of society. The narrative dimension of just transition is critical.7 People must see that they have a decent place in the future we are working for before they will support it in any way. Extending the ‘climate franchise’—that is, giving people a real stake in the climate transition, while listening to their voices—is a prerequisite for the robust design and smooth implementation of climate strategies.

Normative dimension

Just transition depends on—and builds on—a collective ethical stance: respect for human rights, including Fundamental Principles and Rights at Work. Respect for rights helps us define desired outcomes for workers and communities in a just transition, but is also a tool for achieving them. For example, freedom of association and the right to collectively bargain underpin effective social dialogue (between business and labor, sometimes including governments), which is itself a key process for setting the goal posts and practical trajectories of economic transition.

Practical dimension

The bulk of the ILO Guidelines is of a fundamentally practical nature, which indicates perhaps where the ‘heart’ of just transition as a concept lies. There are large and numerous opportunities for improving the efficiency of public and private resources through better coordination, coherence, and integration, including that achieved through social dialogue and stakeholder engagement. Many of these opportunities are left ‘unturned’ simply because governments and other complex organizations are not equipped to identify and harness them. The ILO Guidelines, alongside related research and thought leadership, not only describe what some of these opportunities may look like, but also give concrete ideas for institutional arrangements which can help organizations to identify, develop, and realize them on an ongoing basis.8

Political dimension

While a substantial part of a just transition follows from positive-sum efficiency gains, not all of it does. In fact, an important component of just transition is getting more folks to ‘the table’: the table where climate plans and strategies are negotiated, designed, and overseen. On one hand, this is likely to increase the challenges related to competing interests. On the other hand, alignment achieved in the narrative, normative, and practical dimensions puts these difficult negotiations on a more constructive footing. Bringing more enfranchised voices to the table while simultaneously establishing a forum that supports robust and legitimate negotiation outcomes—reducing risk in and increasing the speed of climate transition—is the crowning achievement of the just transition framework.

Lesson #3

A lot of roads lead back to social dialogue and public policy.

As the stakes (and temperatures) continue to rise, the materiality of both climate change and the holistic response it demands is felt across the private sector. Financial institutions and real-economy businesses of every type and size are formulating a vision of their place in a more sustainable world and developing strategies, policies, and practices that take them there. This is unquestionably an occasion for ‘pulling out all the stops’, and that includes all the areas of operations where corporate and financial actors can contribute to a just climate transition.

Yet in our quest to identify private sector policies, strategies, and practices that promote a just transition, we were repeatedly led back to the need for collective action. Collective action includes formal partnerships and social dialogue, but it also includes the standards and frameworks which shape business practices. This baseline helps to ensure that sustainable business practices don’t come at the cost of competitiveness. Thus, ‘pulling out all the stops’ does mean reforming business practices, but equally important is business’ constructive influence over the frameworks which guide collective behavior. Public policy plays the central role in shifting business practices, while independent standard-setters also serve an important function. Social dialogue emerges (again) as a crucial factor for improving alignment between business and labor, as well as with the policymakers who devise standards and plans that coordinate and balance the needs of different economic sectors and stakeholder groups.

Lesson #4

Decent work is more than decent work.

Decent work—in its four pillars of full and productive employment, social dialogue, rights at work, and social protection—is the centerpiece of the just transition framework. Like respect for human rights, decent work is both an objective intrinsic to a just transition, but also an instrument for achieving it. That is because decent work is the ‘gateway’ to many other aspects of sustainable development, including reduced poverty, reduced inequalities, and economic growth. That means that respect for rights at work, strategies to create jobs and promote social dialogue, and the paying of fair wages and benefits is not a cost, but an investment.9

Decent work maps into all four dimensions of just transition: the narrative, the normative, the practical, and the political. Decent work is typically understood in terms of the last three, yet I believe the narrative dimension deserves more attention. Employment is a platform for earning wages and benefits—crucial for satisfying basic material needs—but it is also a platform for contributing to society, for identity formation, for self-improvement, and for many other desirable things not found in an employment contract. Workers care not only about what their job allows them to consume, but also about what it allows them to produce.

Decent work reduces social frictions through its distributive forces, but also through its narrative and normative forces. And that’s true not just for ‘the worker’: decent work is also about the society we all want to live in, where individuals and communities are respected and there exists a baseline for security and wellbeing. Recognizing the full powers of Decent Work as an idea and goal and embedding this understanding within just transition strategies generates a more robust foundation for our efforts.

Lesson #5

Carbon tunnel vision poses a risk to equity, sustainability, and to climate action itself.

Climate change mitigation is underpinned by systemic qualities including economic innovation and resilience, social participation and uptake, political stability and support, financial stability and access, and international cooperation.10 Small wins for emissions reductions which erode this broader foundation for mitigation activities work against climate objectives. Moreover, this approach represents a significant loss of opportunity. Climate change mitigation should be adopted as a propellant for collective action, recognizing that it also has the capacity to drive progress on other environmental, social, and economic goals.

Moreover, mitigation is only half of the challenge. Adaptation to climate change is equally underpinned by sustainable systems, and is itself a necessary condition for effective mitigation. Indeed, as the face of climate change matures in real time, these two dimensions of climate action become less distinct. Emblematic of the link, natural disasters are often themselves drivers of GHG emissions. In the realm of natural infrastructure and regenerative agriculture, we also see the fundamental union of adaptation and mitigation potential. And at the broadest level, investments in low-emissions technologies, infrastructure, and products depend on economic resilience and development. Acknowledging these dependencies rightly pushes us off a course of carbon reductionism—even for the purposes of mitigation alone.

Climate action–including both mitigation and adaptation–needs a solid footing. That means a holistic approach to climate change, to planetary health, and to the human-climate nexus. This depends on agreement around foundational principles and clear-headed negotiation of the trade-offs. Just transition ensures affected stakeholders have a place in the process and provides a basis for alignment around how the economic, environmental, and social pieces come together—and what can be achieved.

Lesson #6

We are all learning.

Just transition is an evolving space. New ideas, new experiments and experiences, new risks and concerns, new pockets of consensus, new tools and techniques, and new players continually appear. As they do, the ecosystem of just transition practice grows and adjusts through iterative planning and experimentation, evaluation and learning, sharing and partnering. Some consolidation of best practices is useful, though it’s also important to protect the space required for adaptation and experimentation in local contexts.

Across these developments, however, a common theme is emerging. For businesses, for financial institutions, and for governments too, sustainability is no longer a side-show. ‘Side-show ESG’ is simply too costly to justify the marginal benefit. That doesn’t mean that every organization must set out to save the world. It does mean, though, that every organization needs a vision of its place in that future world. That vision is a precondition for not acting against it. It also serves as the basis for broader engagement with stakeholders, including businesses, governments, financial institutions, workers, customers, and beyond.

Here comes that hook again. Check out the fruits of our decent labor: Introduction to Just Transition: A Business Brief.

Postscript:

Pulling out all the stops

In writing this post, thinking about the systemic response required for a systemic challenge, the phrase ‘pulling out all the stops’ kept coming to mind. As the owner and player of this 1890 Packard reed organ, the metaphor means something special to me, even though for the sake of my neighbors I never do it. Just for kicks, I went over to the organ and pulled out all the stops. As I read the names of all the stop tabs again, I was surprised to remember that right in the middle of this (relatively modest) set of stops was Vox Humana: human voice. The metaphor tripled in meaning for me then, as I reflected on the centrality of (human) voice and representation in a just transition.

This organ was restored in the 1990s, but the Vox Humana stop is usually the first to break, and this one already had (again) when I bought the instrument. Vox Humana has a moving part (the tremulant, undulating the air flow) which makes it more delicate than the others. Strangely, more now than before, I can’t help but to miss that stop and think that the human voice would have made the music I play now a lot more beautiful.

Footnotes

  1. The Death of the Carbon Coalition
  2. Florida pulls $2 bln from BlackRock in largest anti-ESG divestment
  3. International Labour Organization Guidelines for a just transition towards environmentally sustainable economies and societies for all
  4. UN Global Compact Think Lab on Just Transition
  5. Introduction to Just Transition - A Business Brief
  6. The Transition Plan Taskforce Disclosure Framework
  7. People are not "leaping at positive change" owing to “a failure of our collective politics to paint an attractive, believable, comprehensible picture of what a just, green society looks like”. See Foreword, A European Just Transition for a Better World, edited by Dirk Holemans, 2022.
  8. A few straightforward examples: the ILO Guidelines recommend that Governments should 1) integrate provisions for a just transition into the agendas of line ministries, rather than assigning them to only one ministry; 2) promote the creation, development and formalization of dialogue mechanisms and structures at all levels to discuss the best means to implement national social, economic and environmental goals; and 3) coordinate skills development policies and technical and vocational education and training systems with environmental policies and the greening of the economy, and consider concluding bipartite or tripartite agreements on skills’ development.
  9. Finance for a Just Transition and the Role of Transition Finance
  10. In different words, "benefits for employment and development are vital for making many mitigation measures technically feasible, economically viable, socially acceptable, and politically sustainable." ILO, Employment and labour market implications of climate change

A New Frontier for Policy & Investment: A US National Development Bank

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A US Public Investment Institution

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With sincere thanks to those who offered feedback and insight in response to the Discussion Draft, listed on page 3, we are pleased to share the final report.

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There’s an ambitious idea making the rounds in the policy community. It has many names and many faces, a testament to its complexity. Distant corners of American thought leadership have converged on its core features, a testament to its potential.

Drawing from the experience of infrastructure banks, development banks, green banks, public banks, the USA’s mid-20th century Reconstruction Finance Corporation, as well as innovations in industrial policy and more, citizens, academics, politicians, civil and industry advocates, and investors are hard at work designing a new public investment institution for the US. It is an investment in America’s future.

This report compares fifteen distinct proposals for a new institution to drive and guide investment in America’s foundations. Although these proposals differ in many aspects, they have enough in common to merit a side-by-side analysis. Following an introduction of the broad context for this policy concept and a summary of each proposal, the comparative analysis covers their common policy objectives and methods, the core design choices which distinguish them, and the special policy objectives which might be worthy of broader uptake.

These proposals are part of a movement to increase and improve public investment in the nation’s future, but this movement also depends on and empowers other sectors, including institutional investors, civil society, and enterprise, as well as other levels of government, to play their part. The debate over key features of this policy idea will continue. Consider this report your guide to that debate.