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December 13, 2021

Just transition: essential to delivering net zero

The push towards a net zero global economy will be the defining challenge of the coming decades. In demanding an unprecedented industrial transformation, it will radically change how economies are structured, companies operate and how people live and work. If not implemented carefully, the transition has the potential to exacerbate existing societal challenges and dislocate the most exposed workforces, supply chains, communities and consumers – particularly those already facing disproportionate challenges due to income, race and other factors.

And as climate extremes become increasingly apparent – with delays to the transition coming with increasing costs – we expect companies to come under increasing pressure to prepare for the physical impacts of climate change, with an eye to building resilience in the communities and regions making up their workforce and supply chains.

We are leveraging our research, engagement activities and partnerships to examine just transition implications in more detail.

Rising focus on just transition will raise risks for most exposed companies

Our latest report exploring just transition readiness found that the most-exposed companies globally are generally under-prepared for the coming disruption to workforces, supply chains, communities and consumers caused by the transition to net zero. We assessed approximately 1,000 companies in eleven sectors identified as most exposed to carbon transition, across seven just transition-relevant criteria. In the report we also use our physical risk datasets to explore how high-emitting sectors are also significantly exposed to physical climate hazards, for example, heat and water stress, with implications for the health of workers and costs for communities.

We expect that companies that fail to demonstrate how they will implement policies and programmes to manage the social consequences of the transition to a low-carbon economy are likely to face greater scrutiny from investors, policymakers and consumers, raising potential market, reputational and legal risks. Find out more in the report here.

ESG Summit Just Transition Panel: Assessing impacts and taking action to build an equitable net zero world

At our ESG Summit earlier this month, leading experts from Moody’s and the international community took part in a panel session exploring the many implications of the issue with experts from policy, asset management and sovereign ESG risk. In the session we discussed:

  • the extent to which workforces and communities will face extreme dislocation and disruption from the net zero transition.
  • the data that can support assessment of the impact on people, sectors, governments and regions most at risk
  • the action that investors can take to ensure that the transition is fair and adaptation to climate change is equitable.

You can watch the session on demand here.

Partnership Investors for a Just Transition

Finally, as part of our commitment to supporting action on just transition, we have partnered with Investors for a Just Transition, spearheaded by the Paris-based Finance for Tomorrow and representing €4.3 billion of assets under management. Our just transition-relevant ESG scores for companies across Europe are now available on their platform, launched on Finance Day at COP 26. We hope our support can accelerate their work to build visibility and engagement on the progress made by companies on this essential component of the net zero transition. You can visit the data hub and use the interactive tool to explore the scores here.