Insights for a Just Transition
Earlier this month, the World Economic Forum published its 2025 Global Risks Report which shows extreme weather events being believed to present the second biggest risk to a material crisis on a global scale in the next two years, and the single biggest risk across the next 10 years. Addressing the threat of climate change will require a fundamental transition to a lower carbon society, but with the historical disproportionate impact of climate change on vulnerable communities, it will also be important to ensure that this threat is properly managed.
To do this, insight on a Just Transition is needed. Originally an idea associated with labour rights in 1970s North America, the scope of what is meant by a Just Transition has evolved. The concept of a Just Transition has broadened from the topic of labour rights to include the minimisation of socio-economic injustices and inequalities which are closely linked to our existing approach to resource use.
Climate change mitigation, if not managed properly, has the potential to disproportionately impact less economically developed communities.
While moving away from energy-intensive activities and switching to lower-carbon alternatives may be meaningful tools in reducing emissions globally, it is important to recognise the associated socio-economic risks which are often overlooked. Economic growth has traditionally been coupled with the production and consumption of goods and services. However, as we seek to reduce these activities to achieve greenhouse gas reductions, less economically developed populations will be disproportionately affected. For example, the IEA’s 2024 World Energy Employment Report stated that most emerging and developing economies face structural barriers to attracting new clean energy manufacturing jobs.
By way of example, the decline of carbon-intensive industries will impact those who have jobs within the fossil fuel industry. The scale of this impact could be huge, with the World Economic Forum estimating that 92 million workers will have their jobs displaced by 2030 due to shifts in technology, the economy, and demographics, towards the green economy. Whilst moving towards a lower-carbon future is beneficial for the environment, for people who may have been employed by this sector their entire working life, skills gaps can prevent them from finding equivalent employment in lower-carbon sectors. The coal sector demonstrates this with jobs in most regions facing a decline, workers generally having fewer transferable skills, and as of 2023, less than 15% of coal workers being covered by coal-specific Just Transition policies. This often means that individuals are forced to make sacrifices regarding their wages and commutes, both of which have the potential to significantly impact quality of life. A shifting industry base can also financially impact communities due to the relocation of operations, and therefore the tax revenue base. The consequences of this are far reaching but include a reduction in the quality of public services such as education and transportation.
The role of the private sector
The Just Transition is clearly a crucial enabler to implementing the net zero transition. Encouragingly, several countries have established Just Transition Commissions as a tool to advise governments on incorporating Just Transition planning into policies and procedures, but what does it mean for the private sector?
More money than ever is being directed towards addressing the climate crisis, but organisations need to be aware of whether their policies and investments are also positively impacting societies. This means that organisations should be increasingly assessing their impact, whether on a voluntary or mandatory basis, and incorporating transition planning into operations. For example, a recent announcement by the European Banking Authority will mandate financial institution’s compliance with their ESG Risk Guidelines from 2026. This will require institutions to prepare detailed transition plans which outline how they will manage financial risks stemming from the EU’s shift toward climate neutrality by 2050. More information can be found in our Sustainability Snapshot on the topic.
By implementing Just Transition planning, organisations can create opportunities both for themselves and wider society.
While transition planning may appear daunting, it also presents opportunities associated with job creation, improved health, and community resilience. Through inclusive planning involving the engagement of vulnerable communities in decision making and financing to support targeted investments in areas such as education and training, corporates can take leading action to bring about positive changes. Taking this leading action by embedding equity into sustainability strategies can, in turn, build reputational benefits associated with supporting a lower-carbon future that works for everyone. Such benefits are seen across a variety of stakeholders through strengthened community relations, the attraction of partnerships which are aligned with the organisation’s own goals, access to a broader customer base who are increasingly concerned about sustainability, and the mitigation of risks. Comparatively, not incorporating the Just Transition into planning could lead to the development of new risks for certain populations and a reduction in business through reputational damage associated with the social license to operate.
Round-up
The shift to a greener economy presents significant challenges and opportunities alike. Impacts of climate change will be seen by almost all individuals, communities, and geographies, and so efforts to mitigate environmental risks should take a global approach that does not worsen existing inequalities. Instead, action should focus on incorporating long-term resilience for vulnerable communities into climate strategies. By taking steps to plan for a future that is not only environmentally sustainable but equitable, there is clear opportunity for organisations to unlock benefits and foster the development of a more just world.