Dubai, 3 December 2023 – Today at COP28, UNEP FI and the International Labor Organisation (ILO) release Just Transition Finance: Pathways for Banking and Insurance, the first roadmap for the financial sector to promote a just transition to low-carbon, resource-efficient and resilient economies. The new guidance will support UNEP FI members and the wider financial sector in embedding just transition practices in their operations and ensuring a climate transition that leaves no one behind.
Climate change threatens our ecosystems and the wellbeing of all living beings on Earth. Achieving society’s climate objective of limiting global warming to 1.5 degrees and reaching net-zero emissions by 2050 as set in the Paris Agreement will require a profound shift across the global economy. However, this shift will fail if not done through a transition that ensures just economic and social benefits and protects vulnerable populations. A just transition involves maximising the social and economic opportunities of climate and environmental action, including an enabling environment for sustainable enterprises, while minimising and carefully managing challenges.
The just transition to low-carbon and sustainable economies holds great potential for job creation, technological innovation, and the development of resilient societies. Through the redirection of financial flows to green technologies, adaptation solutions and innovative businesses, the financial sector has a key role to play to ensure that the transition to low-carbon economies is one that is equitable and leaves no one behind. Insurers in particular are critical actors in building resilient societies by adopting risk-management strategies that address social and environmental challenges and ensuring adequate coverage for all communities.
This report outlines the social and economic impacts of the low-carbon transition and supports banks and insurance companies in taking part in the achievement of a just transition. Complementing the ILO Just Transition Finance Tool for Banking and Investing activities, it provides financial institutions with practical advice and examples of emerging practices on how to embed just transition considerations in their products and business operations in alignment with the goals of the Paris Agreement. The recommendations will help institutions ensure compliance with social performance standards aligned with Human Rights frameworks, while enabling a substantial positive social impact. Amongst them are:
- Securing a commitment to just transition from senior management and governance entities, and ensure this commitment is embedded into existing organizational strategies.
- Mapping and assessing the social risks and opportunities facing financial institutions as a result of the climate transition in order to understand the context-specific nature of how just transition principles should be applied
- Putting people at the heart of institutional strategy and decision-making through social dialogue and stakeholder engagement.
- Developing an implementation strategy to incorporate just transition principles into institutional policies, processes and capacity building
- Developing products and solutions to provide financing and insurance coverage for just transition projects and activities.
- Improving financial inclusion and closing the protection gap to improve client resilience to climate transition.
- Embedding social and environmental considerations in due diligence, legal agreements and monitoring processes.
- Fostering behavioural change through informing and engaging clients on committing to a just transition.
- Engaging in strategic partnerships to catalyze action for a just transition through industry initiatives and other stakeholders.
Focused primarily on social impacts, risks and opportunities arising from climate change, the recommendations from the report can also be applied to address other environmental challenges, such as biodiversity loss and pollution. The resource also recognizes that specific social and economic impacts of the transition are very context-dependent and should be carefully assessed.
The UNPE FI-ILO report was developed with support from more than 40 banks and insurance companies, international financial institutions, academic and civil society organisations. Next year, UNEP FI will develop further resources, guidance and support for UNEP FI members to develop and implement their just transition strategies.