As the UK works to reach net zero, how can we ensure this does not ignore the S in ESG, leaving workers behind? 

As COP26 comes to an end, a series of agreements across countries has been decided. One that remains pivotal, and requires every country’s involvement, is cutting global emissions by 45% by 2030 and to zero overall by 2050. 

It has been feared that moving to net zero could lead to greater unemployment and lower pay, as some industries will no longer exist and others will have to change fundamentally. According to a ‘just zero’ report published last month by the London School of Economics, reallocating capital to achieve net zero can also drive more and better-quality jobs, revitalise communities and reduce inequality in the UK. 

Financial institutions can play a significant role in achieving this by fully integrating the environmental and social dimensions of the transition into their policies and decision-making. Just transition is embedded in the Paris Agreement and is also the policy glue that connects net zero with the government’s levelling-up agenda to ‘build back better’. 

General secretary at the National Union of Rail, Maritime and Transport Workers, Mick Lynch, said that even before Covid, skilled workers had been in a state of emergency for years: “COP26 is right to stress that the planet faces a climate emergency. The pandemic has accelerated the loss of jobs and skills in offshore oil and gas and in transport at a time when these industries are changing in order to fight climate change. We can't have any more delay.” 

LSE’s report lists several ways in which the financial sector can play a part in helping a just transition, including engagement. It recommends integrating the just transition into engagement on corporate net zero plans. This extends to dialogue between financial institutions and other stakeholders such as workers, trade unions, communities, and civil society. 

“Sometimes the assumption is the only people who are able to plan what the decarbonisation process looks like are either managers or experts sitting elsewhere, say in university. But there’s a lot of knowledge there amongst workers,” said policy officer at the Trades Union Congress, Mika Minio-Paluello. 

According to a recent study that surveyed a community of steelworkers – an industry that is most at threat in this transition – 92% of steel workers support a rapid transition and decarbonisation of the steel sector. But almost 80% said they haven’t been consulted at all by their employers or by steel companies about how to do it and what it will look like. 

“Union members want to be a part of that decarbonisation process, including in high carbon sectors, but aren’t being involved in having conversations about what that would look like. So I think engaging workers is key and then we also need to have safeguards to make sure people’s wages don’t drop, the terms and conditions don’t drop, there’s no reduction on health and safety across the board,” said Minio-Paluello. 

Another recommendation for the financial sector from the report is capital allocation. This is described as actively seeking to finance those companies committed to positive social impact for workers, communities and consumers on the road to net zero, making it clear to potential investees and clients that these factors will be included in the firm’s appraisal and due diligence policies for investment and lending.  

“From responsible pension funds we’d expect the more longer term vision, where we look at several economies like Germany or Sweden, and Denmark. Showing that prioritising the rights and the conditions for workers involved in these sectors is good and that [it] does lead to better outcomes over time, and that investors should be prioritising that when they speak to the companies they’re investing,” said Minio-Paluello. 

She also called on investors to ask companies what their decarbonisation plan is, how they bring workers on board and whether they have consulted with them, saying that these types of questions should be part of the conversations they are having before investing. 

“It would make sense for the investors themselves to engage with trade unions and trade union bodies, which to an extent does happen, but I feel like there’s quite a lot more that investors could do,” she added. 

 

 

Nick Spencer

Tim Sharp

Brian Healy