By Rita Roy Choudhury & Mukund Rajan
Just transition (JT) is a new termed coined in this century but its roots date back to the 1992 Rio Earth Summit, where the international community recognised the need to integrate and balance economic, social, and environmental concerns for sustaining human life on Earth. Thirty years after the Rio Summit, the JT debate is gaining momentum now.
The climate transition presents both challenges and opportunities. As per International Labour Organisation (ILO) estimates, 1.2 billion jobs globally depend on healthy ecosystems and environmental stability, and if current global warming trends persist, 2.2% of total working hours will be lost due to heat stress by 2030, equivalent to 80 million full-time jobs. On the brighter side, transitioning to a greener economy presents opportunities for massive job creation, cost savings and new markets. The International Finance Corporation (IFC) estimates that green buildings, electric vehicles, water resource management, renewable energy and waste management in emerging market cities represent a $29.4 trillion investment opportunity.
Challenges, however, loom large. Large-scale job displacement and skill gaps pose significant threats to labour markets. The benefits and costs of the transition will be unevenly distributed. An IRENA and ILO report in 2021 identified four misalignments likely to occur during the restructuring of economies and labour markets: temporal misalignments due to job losses preceding job gains on a large scale; spatial misalignments from new jobs emerging in communities or regions distinct from those where job losses have occurred; educational misalignments due to lack of available skills required during the transition; and sectoral misalignments due to the recast of value chains during the transition.
A series of international initiatives have consequently focused on JT, including the Paris Agreement and ILO’s 2015 Just Transition Guidelines. In 2018, 53 countries signed the Just Transition Declaration at COP24, emphasising the need to consider workers and communities in the shift to a zero-carbon economy. In 2019, the Investing in a Just Transition Initiative and the Banking on a Just Transition project broadened the scope of the debate, and the Climate Action for Jobs initiative was launched at the 2019 UN Climate Action Summit. The Glasgow Financial Alliance for Net Zero, launched at COP26 in 2021, emphasised the support needed for individuals and small to medium enterprises as they transitioned to green practices.
Private sector initiatives like the B Team have also emphasised the importance of supporting an ambitious global climate agreement and creating a fair future of work. They urge enterprises to plan for a net-zero future that benefits all stakeholders and create environments where employees and communities can thrive.
The energy sector is likely to be the worst hit during the climate transition. The ILO expects globally a net gain of 18 million jobs by 2030 through energy-related measures alone, but 6 million jobs are likely to be lost within the energy transition. Collaboration between energy companies and trade unions will be crucial to calibrate this transition. As companies like Ørsted and Enel have shown, this involves smart recruitment planning and ensuring fair wages, social protection, training and skills development.
The transition away from coal is a critical component of the energy transition. While necessary for environmental sustainability, however, this carries significant social and economic implications. It would put millions of employees and pensioners at risk; at India’s largest coal producer, Coal India, this would impact 350,000 employees. A JT plan for the coal sector would require prioritising the welfare of employees and affected regions, supporting reskilling and upskilling programmes to ensure a smooth transition, putting in place social protection measures, and offering fair compensation and access to alternative livelihoods.
JT must be incorporated from the outset in climate mitigation, adaptation, or resilience plans. The financial sector will have a critical role to play and should incorporate social metrics, such as employment impacts, into transition finance frameworks. Currently, most criteria for investment analysis and sustainable finance prioritise environmental metrics, overlooking social aspects. Resources like the Just Transition Finance Toolkit and the Sharm-el-Sheikh Just Financing Guidebook can serve as guides for investors and bankers to make transition financing people-centric.
Corporates must embrace climate action plans today that embed JT for the future. Capacity building on climate action, investing in skill development and working in partnership with their labour unions will enhance their transparency and accountability.
Meanwhile, governments must ensure climate action percolates across states and regions, promoting spatial distribution to make the transition more equitable. India’s long-term low emissions strategy and net-zero goals should signal which sectors and regions will be impacted the most, both for job losses and job gains. Mitigating risks and equitably distributing transition benefits among regions will be important. Consulting with businesses and communities, governments can put together an overall transition plan to migrate or repurpose infrastructure that witnesses a negative impact of transition.
The recently-adopted G20 New Delhi Leaders Declaration emphasises the pursuit of development models that implement sustainable, inclusive and just transitions globally while leaving no one behind and enabling life-long learning focusing on skilling, reskilling, and upskilling, especially for vulnerable groups. In the Indian context, adding a gender lens to JT will be crucial to ensure women, already significantly under-represented in the workforce, do not lose out on new jobs created because of the transition.
Ultimately, all stakeholders, including governments, businesses and investors, will need to act in concert to ensure the climate transition is fair and inclusive, producing equitable outcomes for all.
Rita Roy Choudhury & Mukund Rajan, respectively, managing partner and chief executive, Climate Change and Sustainability Services, and chairman, ECube Investment Advisors