How to contribute to a just energy transition

To be able to limit temperature rise to below 1.5 degrees, the world needs to completely transform how we produce, transport and consume energy, at a scale and pace that is unprecedented. But such transformation pathways have unintended consequences: they can disproportionately impact certain communities, regions and industries more than others. 

To enable a sustainable energy transition, activities and investments should be geared toward helping to support a “just transition”, which is defined as a low-carbon transition that is fair, inclusive, creates decent work opportunities — and leaves no one behind.

While most conversations have centered around governments, the public sector and society, the private sector has a significant role to play in enabling a just transition. This blog explores three questions leaders should ask themselves to ensure they’re effectively driving the just transition agenda within their companies’ operations, communities and value chain.

Whether you’re an energy producer or consumer committed to achieving decarbonization goals, progress should be made in a way that mitigates any adverse impacts on workers and communities. But corporations often aren’t aware of all the potential negative consequences of their operations, especially when you consider the domino effects along the entire value chain.

The first step is to be aware and measure any potential impacts of your actions — because you clearly can’t manage what you can’t measure. The following are some examples of potential transition impacts within the energy sector.

• Land acquisition and diversion: In countries and territories where land is scarce, it’s often the case that productive land is diverted from forest or agricultural use to set up energy facilities. Large-scale renewable energy projects (e.g. wind and solar) usually need large expanses of land to be viable, so diversion of productive land is a common issue. If we consider hydro power, the construction of dams can lead to large-scale rehabilitation issues and also adversely impact aquatic ecosystems. If you’re engaging in any land acquisition or diversion-related activities, ask yourself the following questions: Has the land been diverted from agricultural or forest land or was it tied to any other productive use? And does it have any impacts on livelihoods reliant on these previous forms of land activity?
• Job creation and job losses: Are the jobs you’re creating considered “just”? Productive employment and quality jobs are cornerstones to the International Labor Organization’s Decent Work Agenda, which highlights the importance of rights at work, social dialogue and social protection. But studies show that a majority of the jobs created in the renewables sector are temporary and lack social protection. Only a minority of workers in the sector are represented by associations, and thus have very little leverage, even though these workers without formal safety nets have a key role to play in the transition. It is equally important to ensure that when you consider divestments to decarbonize your energy portfolio, you ask yourself how that will negatively impact people and communities. For example, mine closures often lead to large scale job losses and social conflicts. Early planning is absolutely crucial to ensure that labor and social impacts are minimal.
• Biofuels: In the case of biofuels, the land-energy nexus is an important consideration. Biofuels are seen as particularly important from the perspective of decarbonizing hard-to-abate sectors, such as aviation, freight transport and shipping. Bioenergy can also be combined with carbon capture and storage, which is an important lever for carbon mitigation and carbon removal from the long term perspective. But given the high demand for biofuels, conflicts with food production and biodiversity protection are a significant issue. As a biofuel consumer, ask questions around how the biofuel originated. As a producer, it’s important to make sure that any biofuel is sustainably produced, deforestation isn’t encouraged, and agricultural land or food crops aren’t recklessly diverted.
• Gender: Women’s participation in the transition continues to be riddled with discriminatory practices, such as gender pay gaps. The transition provides a unique opportunity for corporations to firmly position women as change agents while ensuring their rights are protected and workplaces are made more inclusive.
• Supply chain: Organizations need to be able to ask tough questions around where their materials are coming from and if they’re holding suppliers accountable for human-rights issues. For example, energy storage is key to scaling-up the transition at a pace that’s needed (for example, for incorporating greater amounts of renewables in the grid or manufacturing electric vehicles). Battery manufacturers (and others along the value chain, for that matter) should consider whether sourcing of essential minerals like lithium, cobalt, nickel and copper aren’t adversely impacting local communities, workers or the environment at the source of extraction. Health and safety issues, inhuman working conditions, toxic chemicals, radioactivity, pollution and high-particulate-matter emissions are all common problems at these sites.
  

Companies today must plan for, operationalize and integrate just transition principles into their sustainability strategies and practices. They must mainstream these strategies within their operations and through the value chain to promote fair and inclusive workforce transitions.

The following are some questions to ask of your business:

• Is skilling and social mobility ingrained in your transition psyche?
• Do you undertake due diligence within your supply chains to identify and address human rights concerns?
• If your business decisions are leading to job losses, are you doing enough to support and enable the employees to transition into other livelihoods or find other job prospects?
• Are you doing enough to reduce material use and promote circularity within your operations?
• Are you considering the option of using alternate materials and technologies, or goods and services with fewer negative social and environmental footprints?
• If you’re a financial institution with investments in the energy sector, do you integrate social and environmental impacts as primary investment criteria in your investment frameworks? (While many leading financial institutions are committed to accelerating and scaling clean energy and transition-related finance, others have yet to incorporate them in a significant way within their strategies. To enable a sustainable energy transition, environmental and social outcomes must be considered in equal measure to prevent the transition from leading to social inequities. For example, financial institutions, asset managers and owners can incorporate outcomes around quality of jobs supported through asset allocation decisions.)
• Are you providing local employment? Are you providing for reskilling and upskilling of workforces to reflect changing employment needs of the transition?
• Are you working toward bridging existing gender gaps and promoting equality within your own operations and across the supply chain? Are you actively supporting energy or allied businesses owned by women?
  

Just transition plans and strategies need to be developed via constructive social dialogue with stakeholders, including workers, workers’ representatives, labor unions and communities. It’s also important to ensure that gender and different classes of society are well represented. This kind of engagement can help ensure sustainable and mutually beneficial outcomes as businesses navigate the transition. This will also allow stakeholders to feel as if they have a voice in the planning process — which, of course, will help facilitate greater buy-in.

The corporate sector on its own can’t make just transition a reality. They should work collaboratively with other actors, including those within the government and society at large towards this objective. While it is important for corporates to proactively enhance awareness of impacts across the value chain, it is also important to ensure that transition plans are built bottom-up through active social dialogues and stakeholder engagement.

During COP27, KPMG is joining as a founding member of the Alliance for Just Energy Transformation , a new collaborative effort led by the United Nations Development Programme and World Wildlife Fund that aims to ensure the developing world benefits from a transition to a cleaner global economy.