Just transition

Just transition. That’s where probably rubber hits the road for net-zero carbon transition. Will you sacrifice your children’s lifelong earnings and success to save the planet from climate change?

With more advanced techniques to model climate change, it’s more than clear that environmental and social effects are tightly interlinked. We may want to limit climate change for the sake of the planet, biological life, plants and animals around the world. But for many it is more about people and the chances to enjoy life. “Just transition” may be an intersection of history and recent past, social dynamics, national politics, climate science and economy.

It’s said firms should consider the impact of their decarbonisation strategy on society, in a fair way, leaving no-one behind. Easy to say, but what does it mean in practice, especially in the world of “woke” culture, that can be defined as severe intolerance to any form of discrimination. Banks and firms may find themselves on the battlefield where sincere attempts to reduce financed emissions in lending or investment portfolio will be not cheered by the public but rebuked with fierce condemnation.

Let’s take a western global bank that stops financing a coal mine to minimise financed emission. If that mine happens to be in a developing country, there is little doubt the community and families of miners will struggle in the future. Those decisions are often done with a multitude of obscure indicators combined by subjective weights. There might be public scrutiny happening before societies allow consultants and bankers to make life and death decisions for generations and ethnical groups.

It’s debatable if there is a “nationality” to emission accounts or if these are inefficiencies of existing nation-state world order. For some national states it is rational to give up on climate change and prioritise economic development effectively externalising damage to someone else. Our perceptions of such egoism may change whether these historically wealthy societies benefited from industrialization or developing societies struggling from effects of industrial exploitations.

The aim is to save the planet for future generations. Generations and heirs of people who are wealthy and healthy; poor and struggling. Shall the history of previous generations and opportunities for successors be the part of climate efforts?

Ethical challenges will soon face decision makers. Serious climate policies will inevitably change risk profile based on date and place of birth, race, ethnicity, and sex. With human life as the unit of life and death, the topic of discriminations is rising prominently.

Coordinated efforts are in place to understand and predict long-term impact of climate change. Approaches known to me now can assess the first-round social effect at a short-term time horizon. There is a need, however, to create long-term models that explicitly include social impact as the output, particularly at international scale.

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Dr. Tymur Khusainov
Sustainable Finance and ESG Consultant