Just transition moves into focus for LGPS pool
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Border to Coast Pensions Partnership, Royal London Asset Management and Friends Provident Foundation on Thursday set out their expectations for banks to support a just transition, avoiding stranded customers or communities among others.
The investor coalition's goal is that the banks introduce either a standalone just transition plan or incorporate just transition into their existing climate plans. Their paper, ‘Investor expectations on just transition for the banking sector’, forms part of ongoing engagement with UK high street banks Lloyds, Barclays, NatWest and HSBC.
Two banks have committed to take the requested action so far and a third has included just transition ambitions in its net zero plan, according to the investors, while the fourth has stated support for just transition principles.
Colin Baines, stewardship manager at Border to Coast, a £47.9bn Local Government Pension Scheme asset pool, said the integration of a just transition enables investors and businesses to address systemic threats to long-term stability and value creation and supports the delivery of a rapid and resilient transition to net zero.
“We are pleased with the positive response our engagement has received to date and the commitments leading banks have made. As ambition is turned into action, we will use our investor expectations to engage and assess their emerging plans,” Baines said.
just transition is a requirement of the 2015 Paris Agreement, noted Carlota Garcia-Manas, who heads up climate transition and ESG engagement at Royal London Asset Management. It has also become “a key objective of various governments and investor climate initiatives and is emerging as a benchmark for net zero transition plans”, she said. “Our investor expectations are aligned with these initiatives and will assist leading banks to establish best practice.”
Charlie Crossley, investment engagement manager at Friends Provident Foundation, added: “Banks are at the heart of the economy and have a critical opportunity to contribute to a just transition, both via capital allocation and support for customers to transition. By integrating just transition, we hope banks can help reduce the risk of stranded communities, workers, and customers, and support place-based transitions.”
The investors said their expectations will be used “in more granular engagement” with the banks, covering what they want to see in the emerging plans, including:
- Develop and implement a responsible decarbonisation strategy for existing products and portfolios, such as mortgages, ensuring that decarbonisation is achieved without excluding customers and mitigates ‘stranded customer’ risk.
- Integrate just transition into regional corporate banking decarbonisation strategies and identify geographic areas with high exposure to transition risk, seeking to mitigate ‘stranded community’ risk.
- Develop partnerships with public banks and community development finance institutions to provide blended finance solutions to support place-based just transition.
- Integrate just transition into client transition plan assessments and include sector specific expectations in client engagement covering workers, customers, communities, and supply chains.
- Recognise global disparities between developed and emerging markets in client transition plan expectations and assessments, with differentiation in timeframes where appropriate.
The engagement programme has the support of the LSE Grantham Institute’s new Just Transition Finance Lab.
