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Impact Investors Can Catalyze A Just Transition To Net-Zero Emissions

By News Creatives Authors , in Leadership , at October 28, 2021

The 26th annual United Nations climate change conference (COP26) starts Sunday. At its heart is the worldwide effort to formalize steps to reach net-zero carbon emissions by 2050. Concerns over equity and justice in that process have rightly been raised at the global and national levels as marginalized communities already “bear a significant portion of the brunt of heatwaves, hurricanes, and flooding.” But this isn’t only about protecting people vulnerable to increasingly frequent extreme weather. Reaching our net-zero emissions future will reshape markets, industries and, importantly, entire communities.

Achieving the energy transition while doing right by those communities most affected by climate action is known as the “just transition,” a concept rooted in justice and human rights. Among other key objectives, funding the just transition is a critical challenge.

Impact investors’ approach is particularly well-disposed to address the challenge. Their purpose-driven methodology can integrate social imperatives into the financing of the just transition while introducing additional conditions for their investments to prevent, mitigate, and remedy risks and impacts to vulnerable stakeholders. Doing so would reinforce impact investors’ leadership in ESG performance, while demonstrating the art of the possible to the mainstream investment community that has yet to take up the impact-driven approach.

What is the scale of transformation needed to achieve a net-zero economy by 2050?

Avoiding the worst effects of the climate crisis requires nothing less than wholesale economic transformation. The International Energy Agency’s (IEA) first-of-its-kind Net-Zero by 2050 report provides a global roadmap for net-zero by 2050 to stay within reach. It paints a stark picture of what the green economy needs to look like just 28 years from now:

  • Global energy demand will need to be 8% smaller than today, but serve an economy more than twice as big, and a population with two billion more people.
  • Almost 90% of electricity generation must come from renewable sources. Solar will likely be the world’s single largest source of total energy supply, and together with wind energy will make up 70% of the renewables composition.
  • Fossil fuels will represent just over one-fifth of total energy supply (it’s at four-fifths today). These will mainly be used in goods where the carbon is embodied in the product, such as plastics, in facilities fitted with carbon capture, and in sectors where low-emissions technology options are scarce.

What are the types of social impacts that can arise from climate action?

Transformation on this scale is inherently disruptive. While essential for the health of our planet, the actions required to complete this transformation come with an array of risks to workers and communities. These arise at both ends of the transition spectrum.

Transition Out

After more than a century of relying on fossil fuel and carbon intensive extraction, we’re starting to see a tipping point in nations’ readiness to walk away from oil and coal. As these projects sell off (often to less and less responsible companies, given their dwindling economic attractiveness) and shut down, what will happen to the workers who have built their livelihoods around these jobs? To the towns that have become inextricably linked economically to the extractive project? Will the affected areas be ecologically restored? These are critical questions to the genuine achievement of the just transition.

Transition In

At the other end, the transition to a renewables economy will be profoundly mineral intensive. For example,  if not carefully managed, the lithium, cobalt, copper, iron, and other transition-necessary minerals come with enormous physical footprints that directly threaten the newly affirmed right to a healthy, clean environment.

Once the minerals critical to renewables technology are sourced new infrastructure will be needed, raising many of the same human rights risks that the traditional energy sector has grappled with for decades: community agency and benefit from the use and acquisition of their lands; indigenous peoples’ rights and the violence and intimidation threatening them and other human rights defenders; dangerous and unfair working conditions on-site and throughout supply chains; among others. 

The renewables industry need not reinvent the social risk management wheel. There are many lessons-learned from other industries as to how to effectively prevent, mitigate, and remedy the human rights risks arising across the transition spectrum. 

Financing the energy transition within time and the right way

The IEA’s Net-Zero by 2050 report mentioned above estimates that annual clean energy investment needs to more than triple, to over $4 trillion per year between now and 2030. That’s roughly equivalent to the nominal GDP of Germany each year. Over the next three decades, this represents a total that’s well over $100 trillion in clean energy investment

This reinforces the many positive opportunities coming from investing in the energy transition—financial, social, and environmental. For example, in 2019 the Connecticut Green bank reported that its $40.7 million in green investment attracted an additional $312.7 million in private investment in the state, along with the creation of over 3,300 direct, indirect, and induced job-years. By the end of fiscal year 2019, the Connecticut Green Bank’s investments helped reduce 1.18 million tons of carbon dioxide emissions, along with over one million pounds of nitrogen oxides and 662,949 pounds of sulfur oxides.

Getting the just transition right as well as funded is a challenge uniquely suited to impact investors, because of their impact rubrics and a focus on returns beyond purely financial gains. This translates into an ability to bake early-stage criteria and requirements on developers into project planning and conditions from the outset, casting a long shadow on the life of major infrastructure projects.

If we can better marry the human rights-based approach with impact investing, we give ourselves the best possible chance of achieving an enduring and equitable just transition. The United Nations Guiding Principles on Business and Human Rights are a key tool to help all investors integrate human rights-based principles into projects and capital conditions.

The U.N. guiding principles’ focus on risks to people ensures that no potential opportunity to safeguard and benefit the rights of different groups in society is overlooked. They also clarify the boundaries of state duties and the domain of the private sector—useful when the investor is unsure of the exact scope of acceptable social benefit to target through private funds, or how to create synergies with state interventions. As for impact measurement, a rights-based approach can help articulate the delta to be measured, which may help avoid any guesswork on what constitutes benefits and for whom. 

The pathway to achieving the just transition by 2050 is narrowing by the day. Introducing an explicit human rights-based approach to project conditions and measurement could not only enhance the quality of impact investing portfolio in meeting the just transition, but in so doing draw in other types of investors eager to demonstrate the positive effects of their investments. We need more traditional investors—commercial lenders, high net worth individuals, private equity, sovereign wealth funds, and others—to become impact investors backed by the human rights framework, and play a key role alongside governments and community stakeholders in building our net-zero economy.


Haley St. Dennis leads communications at the Institute for Human Rights and Business, a global think tank shaping policy, advancing practice, and strengthening accountability to make human rights part of everyday business.

Max Seawright is the Sorenson Impact Center’s Director of Communications

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