To win the Race to Zero, all companies must put sustainability at the heart of their business model and undergo their own green transformation, argues Jakob Askou Bøss, Senior Vice President of Corporate Strategy & Stakeholder Relations at Ørsted.
How a just transition can speed the race to net zero
If there’s one thing that the brutality of the COVID pandemic has taught us, it’s the importance of shared endeavour in the face of a disruptive shock. The same is true for the existential threat of climate change, whose physical impacts are already overturning lives and livelihoods across the world, spurring countries, companies and communities to step up the race to net-zero.
Long championed by the trade union movement, the just transition is now also becoming a shared endeavour. Five years ago, the Paris Agreement recognised the imperative of placing the interests of workers and communities centre-stage so that decarbonisation brings decent work and quality jobs. All the evidence suggests that the creation of the net-zero economy offers huge potential to create both more and better jobs, thereby contributing to ending the poverty and inequality that holds back the global economy.
Looking at the energy sector, for example, almost 58 million people worldwide were employed in the energy sector in 2017. According to IRENA, this could rise to 100 million under its Transforming Energy Scenario, which would set the energy system on the path needed to keep the rise in global temperatures to well below 2°C and towards 1.5°C during this century. This generates 15% more jobs than IRENA’s conventional Planned Energy scenario, led by renewables, energy efficiency as well as power grids and energy flexibility. This shift is already underway with renewable energy jobs growing by 500,000 to 11.5 million in 2019.
Making sure that this expansion in employment takes place and does so in ways that provide fair incomes for workers and better prospects for communities will not happen automatically, however. Too often, the climate agenda has been socially blind, introducing policy interventions with little regard for the impacts on employment, or indeed on consumers. As one of the gilets jaunes protesters in France memorably remarked, ‘you care about the end of the world; we care about the end of the month.’
That’s why the just transition is rising to the top of the agenda as the connective tissue that binds together climate goals with social outcomes. First of all, it’s simply the right thing to do, making sure that longstanding human rights are realised in the transition, not least the right to participate in decision-making in the workplace. Second, a just transition is essential to build the political support for the changes that are needed, overcoming the understandable anxiety of those who fear that they could lose out. Workers in high-carbon sectors tend to support green policies when they believe that credible alternatives exist. This was confirmed this year in a survey of oil and gas workers in the UK, where over 80% said they would consider moving to a job outside sector. Given the option of retraining to work elsewhere in the energy sector, more than half would be interested in renewables. As one worker put it: “moving into renewables is something to feel good about.”
COVID-19 is intensifying the importance of translating the just transition into a practical reality for the global energy system. Global coal production peaked two years before the Paris Agreement and 2019 looks set to be the peak for oil production. This year, oil corporations have made historic writedowns as they realise the looming risk of ‘stranded assets’ on the road to net-zero. In the words of Sharan Burrow, General Secretary, International Trade Union Confederation (ITUC), it’s essential that this economic restructuring does not result in ‘stranded workers’ and ‘stranded communities’.
The key ingredients of what makes for a just transition are well-established: social dialogue in the workplace, along with respect for labour standards and human rights, economy-wide skills development and retraining, buttressed by social protection and safety nets. As many of the core high-carbon sectors are clustered in specific places, community renewal and regional development is crucial, along with macro-economic strategy to connect the just transition with key climate policy levers (such as carbon pricing). In addition, a special focus needs to be placed on small and medium-sized enterprises both along supply chains and in regional economies.
Turning the just transition into everyday reality is clearly a tough challenge. Even before COVID, the global economy was marked by a set of ‘decent work deficits’ that confront the 3.7 billion people who are either employed or could be in a job. But there are growing examples of leaders across government, business and society demonstrating how this challenge can be met. In the European Union, Commission President Ursula Von Der Leyen has placed the just transition at the heart of its Green Deal, introducing a dedicated funding mechanism, stating that “the transformation ahead of us is unprecedented. And it will only work if it is just – and if it works for all”. In South Africa, President Cyril Ramaphosa has committed to draw up a just transition plan backed with a just transition fund so that measures are in place for “workforce reskilling and job absorption, social protection and livelihood creation, incentivising new green sectors, [and] diversifying coal dependent regional economies”.
In business, energy utilities across Europe are signing up to a just transition pledge and in the USA, Salesforce has released a guide showing how companies can incorporate the just transition into their renewable energy procurement. Investors too are starting to integrate the just transition into their climate activities. Bringing together over 500 global investors with over US$47 trillion in assets, Climate Action 100+ has included the just transition as one of the eight areas in its Net Zero Carbon Benchmark. Development finance institutions such as the European Bank for Reconstruction and Development and CDC are also coming forward with new initiatives.
These efforts of course are only the beginning and will eventually need to cover all parts of the global economy. This includes the agricultural sector – which makes up a quarter of global employment – so that the promise of nature-based solutions also generates inclusive outcomes. As the world heads towards COP26, the just transition will need to be part of every government’s COVID recovery plan as well as their NDCs and long-term climate strategies. It needs to be part of every business plan and every finance strategy from banks and investors. If net-zero is the ‘what’, then the just transition is the ‘how’.
Nick Robins is Professor in Practice in Sustainable Finance at the Grantham Research Institute of the London School of Economics and co-author of the investor guide to the just transition.
Alok Sharma said COP26 will be the world’s best chance of building a cleaner, greener future and “our last hope of keeping 1.5 degrees alive”.
“The world we live in today has been shaped by the breakthroughs of our past – from the Model T assembly line to the spread of mobile phones across previously unconnected rural areas. Such breakthroughs continue to propel us towards a safer future, as long as governments make sure the whole of society comes along for the ride.” – UN High Level Champion, Nigel Topping.