Prospects of a just transition

Based on the BNP Paribas Global Report.

The Importance of a Fair Transition

The ongoing environmental and societal transition calls for various unprecedented transformations (industrial, societal, technological, and environmental practices) and represents both a moral and strategic obligation. While the world is experiencing major and rapid changes, disadvantaged populations appear to be the most affected. 

Laurence Pessez, Global Head of CSR at BNP Paribas Group, analyzes the impact of this transition on all aspects of life, while governments have the heavy responsibility of guiding these changes for the benefit of all. Thierry Pech, CEO of Terra Nova, suggests an inclusive approach to avoid tensions, while keeping in mind incidents like the ‘yellow vests’ protests. A ‘just transition’ will involve supporting individuals, families, and businesses that will need to adapt their business models or even cease their activities. 

At the same time, the low-carbon economy will develop, bringing new industries with it. This global phenomenon must take into account North/South dynamics, or else it risks causing serious social and humanitarian crises.

Achieving the goal of carbon neutrality by 2050 will not be easy, and all stakeholders (economic and social) will need to come together to do so, while mobilizing households and citizens around this same goal. This is particularly important for low-income households that cannot afford the infrastructure changes needed to reduce CO2 emissions. This may include the need to rethink lifestyles in areas affected by urban sprawl or finding solutions to reduce dependence on polluting vehicles.

« A ‘just transition’ will involve supporting individuals, families, and businesses that will need to adapt their business models or even cease their activities »

European Perspectives and the Role of Individuals

Europeans are increasingly aware of climate change – “7 out of 10 Europeans are concerned about global warming,” but for the transition to succeed, it must be balanced and justified. At a time when purchasing power is the primary concern of European citizens, climate change comes right after.

Brice Teinturier from Ipsos emphasizes the importance of information and support for relevant groups: “The task is immense, and we will only succeed if the climate transition is perceived as crucial (an opinion shared by most people) and fair (an opinion shared by a smaller number of people).” Many Europeans are reluctant to change their behaviors because they believe that the energy transition will have more negative than positive impacts. Europeans are, for example, very divided on the assessment of the effort required of them for such a transition. One-third of them feel they are being asked for too much, one-third not enough, and one-third are satisfied. 

On the business side, Antoine Sire, Engagement Catalyst at BNP Paribas, highlights the opportunities and challenges that individuals may face during this transition, as well as the essential role of training and support for employees.

« The task is immense, and we will only succeed if the climate transition is perceived as crucial and fair. »

Furthermore, the World Benchmarking Alliance (WBA) has evaluated 180 companies in three sectors – oil and gas companies, electric utilities, and automakers – based on its own indicators of a just transition. Five main conclusions emerge:

  • The vast majority of high-emission companies fail to demonstrate their efforts toward a just transition.
  • The most exposed people are excluded from decisions affecting their future.
  • Companies must commit to retraining workers or risk having a stuck workforce.
  • Companies still do not use their influence to protect people, manage social impacts, and advocate for a just transition.
  • A just transition must be based on respect for human rights by companies.

More generally, the risk of a perception gap is rising between large companies and affluent individuals perceived as relatively “polluting” and making too little effort, and low-income individuals and small and medium-sized enterprises (SMEs) considered “moderately” polluting but more penalized.

The Global Vision of Transition

Marc Ringel, Professor of Energy Economics & European Chair for Sustainable Development and Climate Transition at Sciences Po, emphasizes the need for tailored policies for a just transition on a global scale. The focus is on energy poverty and the necessity of investing in renewable energies. These will complement nuclear capacity in the long term where available.

A just transition goes beyond the gradual phase-out of coal while supporting coal regions and people working in this industry. The shift from internal combustion engines to e-mobility will disrupt the entire automotive industry and its suppliers. Policymakers will need to balance interests while ensuring a just transition for workers and communities affected by these changes.

Thomas Friang, Founder and CEO of the Open Diplomacy Institute, underscores the importance of international cooperation and commitments such as the Paris Agreement. This global perspective is crucial for addressing the challenges and opportunities of a fair transition. Indeed, the major developing economies from the Kyoto era (protocol signed in 1997) are now among the largest greenhouse gas emitters, with China leading the way. The slogan of the Indian presidency of the G20, which sought to avoid a period of war, is inspiring in this regard: ‘One Earth, One Family, One Future’.”

Financial Actors and the Transition

Banks and other financial institutions play a central role in this transition. These institutions have the potential to facilitate it for citizens in terms of housing, mobility, and food. New regulations also have indirect effects that will need to be addressed, such as reducing the number of available properties on the market due to non-compliance.

Inclusive finance, aimed at enhancing resilience to climate change, can contribute to ensuring a sustainable transition for all. The “My Sustainable Home” initiative seeks to decarbonize residential real estate by identifying the right subsidies, assistance, and support for vulnerable individuals. 

Lastly, collaboration between NGOs like The Just Transition and local financial institutions is invaluable for bridging gaps.

Companies Facing Change

Companies, particularly multinational corporations, have the power to influence this transition on a global scale. Fossil fuels still account for 84% of the global energy mix today, even though we know that their share should become a minority as soon as possible. Investment in nuclear and renewable energies, along with increased attention to the social aspects of the transition, can not only help companies adapt but also attract environmentally-conscious talent. Especially among younger generations, individuals are seeking alignment between their values and those of the companies they work for.

Finally, the European CSR guide provides a framework for companies, emphasizing social impact, dialogue, risk management, and a clear definition of their mission. Close collaboration between governments, businesses, financial institutions, and citizens appears essential to ensure a balanced and successful transition.

The Urgent Need for Skills in a Successful Climate Transition

The climate crisis necessitates the rapid development of new technical and fundamental skills. Organizations like Business in the Community, with the support of major corporations, recognize the importance of this symbiosis. The shift toward a green economy can be a powerful driver for social inclusion in entire sectors, while others will face unprecedented challenges.

Here are two examples of organizations actively addressing the challenge of new skills and inclusion: 

  • The company “Etre,” based in Haute Garonne, has established a network of eco-transition schools (ÊTRE) aimed at providing training in green jobs for young people without qualifications. The focus includes areas such as solar panel installations, the circular economy, and more.
  • Moulinot, the recipient of the 2023 NextGen Trophy, converts organic waste into green energy for all and natural fertilizers for agricultural soils. The company has created its training organization for job seekers and shares its knowledge and expertise with businesses, elected officials, and communities to promote eco-responsible practices.

Another major example in Europe is the automotive sector, which must undergo a complete reinvention. Europe has launched the Green Deal, aiming to achieve carbon neutrality by 2050. This is a vital issue for the 13,000 jobs in the sector.

Sustainable Finance as the Cornerstone of the Transition

The Implementation of a ‘Just Transition’ Label Promotes a More Ethical Investment Approach”.

Financial institutions, guided by regulations such as the “EU Sustainable Finance Disclosure Regulation,” seek to balance climate and social issues.

Banks are working to incorporate minimum social guarantees into investment strategies, alongside environmental considerations. They are also contemplating the development of a “transition framework” to identify companies that are likely to adapt their business models to the energy transition by adding additional social filters.

Furthermore, portfolio managers are moving toward an integrated approach, considering both environmental and social impact. This trend is reinforced by entities such as the Institute of Sustainable Finance in France, suggesting a new approach to socially responsible investing (SRI). Beyond carbon footprint, the social footprint of companies would be measured through an SRI standard to assess their social practices. By creating systematic analysis methods for transition practices, it will be easier to make informed decisions.

The Role of Citizens and Local Initiatives in the Transition

A successful transition requires active citizen involvement. Citizen conventions have been established in several countries to allow citizens to contribute to the discussions. The European Commission, through its “Just Transition Mechanism,” provides significant support to affected regions. The fund is backed by financial instruments and the EU budget. Beneficiary regions must develop a transition plan to showcase their strategies and milestones while highlighting the socio-economic benefits. For example, a school dedicated to green technologies was launched in Cyprus. The Commission has also adopted the “Net Zero Industry Act” to promote the green industry.

However, for this transition to be successful, public support is essential. Past experiences, such as the “yellow vest” protests, demonstrate that the social impact of environmental policies must be considered. To support innovative solutions, partnerships such as the one between BNP Paribas and ADEME have been created, as well as government bodies like the Klima-Agency in Luxembourg, responsible for promoting energy transition through the deployment of the Klima Bonus program.

Geopolitics and International Implications of the Transition

Several countries are making efforts to involve citizens in their energy transition. Luxembourg has introduced various programs to financially support citizens in this transition and has, for example, pioneered free public transportation. Other developing countries face unique challenges, often being financially constrained and heavily reliant on fossil fuels. Partnerships, such as the “Just Energy Transition Partnership” established during COP 26 between South Africa and the governments of France, Germany, the UK, the US, and the European Union, commit to mobilizing $8.5 billion to support South Africa’s transition.

Governments, with the support of banks, can also issue bonds for energy-related investments or reinvest carbon taxes into the economy. As we can see, the transition will have a profound impact on society and the labor market. It will require a profound transformation of high-carbon sectors and job creation in green sectors. In our tense geopolitical context, strong coordination between the economic and political spheres will be necessary to turn this unprecedented movement into an opportunity rather than an undue burden.

Author: Luc bretones, Founder of NextGen