Road to COP28: Climate change - business and the just transition

Introduction

As the global response to climate change gathers pace, the policies and practices we put in place to enable transition should be designed carefully to avoid unintended consequences on people. In the drive towards ‘net zero’, for example, tens of thousands of jobs in the fossil fuel industry spanning oil, gas, coal and chemicals could be lost or, alternatively, they could be transitioned into rewarding roles in new low carbon industries. Similarly, the supply chains of renewable energy technologies should operate with high levels of integrity and transparency to avoid the presence of forced or child labour, poor working conditions or environmental pollution. If managed effectively, there is scope for new green industries to not only sustain high levels of employment, but to bring profound socioeconomic and health benefits for communities across the world. 

The pursuit of a ‘just transition’ to a low carbon economy is one of the core themes of the COP28 summit in Dubai which, for the first time, has established a work programme specifically in this area. On 5 December 2023, world leaders will discuss how business, governments, trade unions and financial institutions can collectively ensure that climate action takes place in a way that foregrounds people, notably those at risk of losing their livelihoods or otherwise impacted by transition.

What is a just transition?

The phrase ‘just transition’ originates in 1980s USA where it was used to describe the social interventions necessary to protect the rights of workers as employers transitioned away from polluting practices. The classic example is coal mining where the aim of a just transition is to ensure workers move into new roles through retraining and investment as coal mines and allied industries are wound down. The concept was incorporated into the text guiding policymakers in the run up to the Copenhagen Summit in 2009, and was later worked into the preamble of the historic Paris Agreement of December 2015. It is now widely recognised as a core ingredient for successful movement to a low carbon economy, without which progress can be derailed. 

Katowice in Poland hosted COP24 in 2017, where 53 governments adopted the Just Transition Silesia Declaration, in which they committed to develop national transition strategies that include investment in green jobs and reskilling workers from so-called ‘brown’ (polluting) industries. The location of the conference was well-considered: Katowice, the capital of Silesia, is the largest coal mining region in Europe. Jobs in the industry have shrunk over the last decade as Poland gets behind the EU’s carbon targets. To mitigate the impact on the region, the EU set up a multi-billion Just Transition Fund to support local economic diversification to green industries. Despite the Fund, the transition does not appear to have proceeded smoothly, illustrating the challenges of any large-scale adjustment to a legacy industry with historic roots. 

The investment in Silesia is part of the EU’s wider ‘Just Transition Mechanism’, providing dedicated assistance and financial resources to help EU member states develop and implement national just transition plans. Since the Katowice Declaration, many other governments have embedded the concept into their climate law frameworks. Examples include Canada’s Sustainable Jobs Act, which requires the government to provide support to people whose jobs could be affected by the transition away from fossil fuels; and Spain’s Climate Change and Energy Transition Law, which commits the country to introducing measures to support workers affected by the phase-out of coal-fired power by 2030. More recently, global thinking on just transition was captured in a Just Transition Declaration at COP26 in Glasgow in 2019. The Declaration is holistic, covering not only workers’ rights and livelihoods, but fairness in economic policies and supply chains.

Business and just transition

The private sector has a key role to play in driving innovation in carbon-intensive industries to reduce emissions, diversify and transform companies into engines of low carbon growth, while facilitating green jobs in new SMEs and supply chains. One place where larger companies can highlight their approach to just transition is in a ‘transition plan’, a “time-bound action plan that clearly outlines how an organisation will pivot its existing assets, operations, and entire business model” in line with their net zero commitment, according to CDP. Going into COP28, it will be particularly important for companies to demonstrate clear and transparent accountability to stakeholders (not least investors and employees) on how they intend to contribute to the goals of the Paris Agreement, including just transition. 

Transition planning is also emerging as an important tool for central banks, standard setting bodies and international organisations wishing to assess the preparedness (and resilience) of companies on climate risks. In the UK, for example, HM Treasury’s Transition Plan Taskforce recently published a framework recommending that companies publish a transition plan alongside their annual report. It encourages companies to describe how they intend to pursue their climate objectives “in a manner that captures opportunities, avoids adverse impacts for stakeholders and society, and safeguards the natural environment” (see more here). It is expected that transition planning will eventually become mandatory for larger companies.

In addition, some jurisdictions now require companies to carry out due diligence checks to identify adverse environmental and human rights impacts in their operations and supply chains. The impact of a company on its local communities and environments, and throughout its supply network, may be considered elements of just transition where the impacts are driven by climate and sustainability goals. Examples could include the presence of child labour and environmental pollution in and around mining operations serving EV battery manufacture (eg critical minerals), or land use change resulting from the sourcing of biomass and biofuels. 

As interest in supply chain due diligence grows, existing ‘soft law’ expectations enshrined in frameworks such as the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct and the UN Guiding Principles on Business and Human Rights are being converted into ‘hard law’ obligations such as the EU’s proposed Corporate Sustainability Due Diligence Directive and national legislation such as the French Duty of Vigilance Law and German Supply Chain Due Diligence Act. Supply chains serving new transition technologies will be treated no differently to conventional ones in this regard.

These are just a few of the legal issues that companies may have to navigate as they juggle the pressures of moving towards a low carbon economy, while contributing to a just transition. Companies will also need to be mindful of employment law considerations as they transition into ‘green’ (or ‘greener’) industries or make other changes that would affect the workforce (in particular, consultation requirements with employee representative bodies, pension trustees, and if applicable, laws regarding redundancies and worker support packages). Consideration should also be given to developments in the use of sustainability metrics for variable remuneration arrangements and climate-conscious pension scheme investment strategies (see our discussion on the interaction between ESG and people here). Antitrust and competition laws may also come into play as companies demand more from their suppliers and ask them (either unilaterally or collectively) to comply with certain standards or risk being removed from a supply chain. Any such ‘collective agreement’ should be assessed carefully under all applicable antitrust laws, which can be challenging when future effects on suppliers and consumers are difficult to measure and jurisdictions worldwide are adopting different enforcement policies.

Conclusion: some transitions are more equal than others

As the focus of world leaders turns to the issue of a just transition at COP28, business will once again come under the spotlight. Large companies not already considering their approach may soon feel pressure to do so. The art of just transition can be summed up very easily: in the quest to beat climate change, don’t leave anyone behind.