Peter Mennie, ASIP, is global head of ESG integration and research at Manulife Investment Management
Climate change on its current trajectory would be economically devastating, with the greatest impact likely to fall on the poorest individuals, communities and countries. But crucial to achieving consensus on climate change action is a fair and equitable approach to its implementation – a just transition that addresses the risk of the costs of addressing climate change falling disproportionately on those unable to afford it.
Countries and businesses are implementing initiatives designed to curb reliance on polluting through carbon pricing, but these costs threaten a near-term inflation pickup as businesses essentially pay to pollute or, alternatively, invest in the new technology required to avoid emitting greenhouse gases, and some politicians have attacked these green taxes as inflation bites. While it’s true that taxes on energy disproportionately affect the less wealthy, green taxes that incentivise a shift to sources of low emission energy are crucial to achieving net zero.
When tackling climate change, we need to consider the Sustainable Development Goals, including reducing inequalities and offering decent work and affordable clean energy. It’s also essential to properly appreciate the effects of a just transition on workers, supply chains, communities and consumers if we are to ensure its widest possible acceptance because failure to properly transition jobs from high to low carbon risks policy reversal if real action is not taken to develop jobs in renewable industries. A United Nations just transition white paper suggests that companies, industries and state or federal government could establish and finance public retraining programmes to enable reskilling within the context of regional economic development strategies.
Current inequalities are worsened by rising energy prices, which have been exacerbated by the crisis in Ukraine. By nature, energy expenditure by households is fairly inelastic, which increases pressure on politicians to find ways of reducing prices, making carbon taxes a potential target. And as every industry is pushed to decarbonise, this green revolution might cause short-term costs that further contribute to global inflation.
We will all, especially the poorest in our communities, lose in the event of irreversible climate change. But the gilets jaunes protests in France in 2018 served to highlight that solutions to climate change that do not acknowledge the reality of economic inequality are perceived as unfair and are politically impractical. But it’s essential that the global climate change agenda stays the course. We expect all of society to eventually benefit from lower energy costs and an energy supply that does not irreversibly damage the planet.
Green taxes, regulations and tariffs are important components of the transition to clean energy, and investor interest in green, social and sustainable sovereign bonds that direct funding toward the transition to clean energy is soaring. But it will be vital to clarify exactly what green taxes pay for and, as proponents of action on climate change, we have a responsibility to deliver comprehensive messaging about the tangible benefits resulting from the revenues raised. Institutional investors and shareholders can use their influence on global companies to ensure that just transition measures are in place in consultation with workers, communities and unions.
Political support is growing, with 46 countries committing to the introduction of national planning to aid a just transition, and 161 investors representing $10.2trn (£7.8trn) in assets have publicly stated their commitment to supporting the PRI’s recommendations for investor action. EU member states have approved a €17.5bn (£14.7bn) Just Transition Fund targeting support to regions and sectors most affected by the transition to the green economy.
We must replace employment in polluting industries with new, high-quality jobs and incentivise investment and more sustainable practices. We must set higher standards. These come with short-run costs, and we must ensure we understand who pays and who gains in a just transition – the crucial prerequisite for building and maintaining public support for transformational change.
Read the full article at Manulife Investment Management—Sustainability