The financial system must play a central role in delivering just transitions to a net-zero and climate resilient economy. In essence, the just transitions concept reflects the strategies needed to ensure that climate action maximises social benefits (for example for workers and communities) while also actively managing the social risks of transitions. Making this happen is set to involve significant changes to financial practice, and early-stage experimentation is emerging in public and private finance. Now is the time to take stock and identify how to scale just transitions finance. This report seeks to address one dimension of this challenge by illustrating specific financial instruments that are already or could be better designed to contribute to the just transition. This report maps a range of 30 examples of financial instruments being deployed across the fields of public, private, and blended finance. Some of the examples mapped can be included under multiple categories. All of the mechanisms mapped are worthy of further exploration. Some might be better suited for certain types of transitions or certain types of financial actors. Many might be described as forms of “blended finance” between public, private, and/or philanthropic sources. All work under the assumption that private sector finance will need to become the primary source for financing transitions to more sustainable economic activities if we are to find the trillions of dollars urgently needed annually by 2030, and 2050 longer-term. Some of the examples self-declare their commitment or alignment to just transitions principles. Others are not explicitly “declared” as just transitions mechanisms or instruments but nonetheless demonstrate elements of implicit alignment or the potential for greater alignment in future. The selection of examples cited is far from exhaustive and intended only to illustrate a small slice of what is in reality a more complex spectrum. However, it is hoped that the selection gives a sense of the variety and range of instruments that can and must be creatively leveraged moving forward.In terms of scope, the examples highlighted focus almost exclusively on instruments designed to support the achievement of net-zero. As the physical impacts of climate change intensify, achieving ‘just resilience’ is becoming a growing focus for government policy as well as for the financial sector. Furthermore, beyond this first sample of 30 examples, there are likely to be many other financial instruments which could be tailored to support the just transition. But a major constraint holding back finance is the lack of agreed principles, taxonomies and metrics for the just transition. Concrete steps can be taken by financial actors to increase alignment between the actions needed to address the climate crisis and protect the human rights and development prospects of vulnerable communities. This is most urgent within the realms of private finance, from where most financial resources will need to come in the years ahead, but where the least progress has been made so far. Looking ahead, increasing attention should be placed on the quality and accountability of climate finance in terms of socio-economic process and performance. Just transitions frameworks should acknowledge the importance of the timing and cohesion of activities towards stated goals. Because of how far-reaching the socio-economic impacts of climate action projects can be, and how equally far-reaching efforts to mitigate harms must be, careful planning and communication is essential. A substantial amount of work in projects should be carried out in the design stage, focused on identifying potential impacts of specific actions (both positive and negative) through extensive analysis and meaningful stakeholder engagement. These steps are critical to defining appropriate actions in subsequent phases. Monitoring and evaluation will also be crucial to ensure that defined activities are truly supportive of the rights and interests of workers, communities and other affected stakeholders and that rapid, continuous improvement is the norm: robust metrics are needed to track performance and outcomes. In support of this ambition, the following conclusions to governments and public financial institutions as well as business and private financial institutions are offered as a starting point in the development of more dynamic approaches. Whilst the primary responsibilities lie with these actors, civil society must also be actively involved in the evolution of just transitions finance, playing a crucial role in driving integrity, inclusivity, and accountability. As such, their capacities for engaging with various actors, instruments, and forms of finance should be supported and strengthened by both public and private financial actors. This report is a mere snapshot of the spectrum of finance and the potential for each actor across public, private, and blended finance domains to play their part in transforming the financial system and intentionally serving just transitions pathways. The just transitions finance ecosystem is still relatively small, and mainstreaming is the ultimate aim. The authors and many other organisations are actively collaborating on innovations, research, and sharing concrete examples of practice to further these aims. We invite you to join us in these collaborations.

White Paper: Leveraging the Spectrum of Finance for Just Transitions

Resource Key: WJU95BGF

Document Type: Report

Creator:

Author:

  • IHRB

Creators Name: {mb_resource_zotero_creatorsname}

Place: London

Institution: Institute for Human Rights and Business

Date: December 2024

Language: en

The financial system must play a central role in delivering just transitions to a net-zero and climate resilient economy. In essence, the just transitions concept reflects the strategies needed to ensure that climate action maximises social benefits (for example for workers and communities) while also actively managing the social risks of transitions. Making this happen is set to involve significant changes to financial practice, and early-stage experimentation is emerging in public and private finance. Now is the time to take stock and identify how to scale just transitions finance. This report seeks to address one dimension of this challenge by illustrating specific financial instruments that are already or could be better designed to contribute to the just transition. This report maps a range of 30 examples of financial instruments being deployed across the fields of public, private, and blended finance. Some of the examples mapped can be included under multiple categories. All of the mechanisms mapped are worthy of further exploration. Some might be better suited for certain types of transitions or certain types of financial actors. Many might be described as forms of “blended finance” between public, private, and/or philanthropic sources. All work under the assumption that private sector finance will need to become the primary source for financing transitions to more sustainable economic activities if we are to find the trillions of dollars urgently needed annually by 2030, and 2050 longer-term. Some of the examples self-declare their commitment or alignment to just transitions principles. Others are not explicitly “declared” as just transitions mechanisms or instruments but nonetheless demonstrate elements of implicit alignment or the potential for greater alignment in future. The selection of examples cited is far from exhaustive and intended only to illustrate a small slice of what is in reality a more complex spectrum. However, it is hoped that the selection gives a sense of the variety and range of instruments that can and must be creatively leveraged moving forward.In terms of scope, the examples highlighted focus almost exclusively on instruments designed to support the achievement of net-zero. As the physical impacts of climate change intensify, achieving ‘just resilience’ is becoming a growing focus for government policy as well as for the financial sector. Furthermore, beyond this first sample of 30 examples, there are likely to be many other financial instruments which could be tailored to support the just transition. But a major constraint holding back finance is the lack of agreed principles, taxonomies and metrics for the just transition. Concrete steps can be taken by financial actors to increase alignment between the actions needed to address the climate crisis and protect the human rights and development prospects of vulnerable communities. This is most urgent within the realms of private finance, from where most financial resources will need to come in the years ahead, but where the least progress has been made so far. Looking ahead, increasing attention should be placed on the quality and accountability of climate finance in terms of socio-economic process and performance. Just transitions frameworks should acknowledge the importance of the timing and cohesion of activities towards stated goals. Because of how far-reaching the socio-economic impacts of climate action projects can be, and how equally far-reaching efforts to mitigate harms must be, careful planning and communication is essential. A substantial amount of work in projects should be carried out in the design stage, focused on identifying potential impacts of specific actions (both positive and negative) through extensive analysis and meaningful stakeholder engagement. These steps are critical to defining appropriate actions in subsequent phases. Monitoring and evaluation will also be crucial to ensure that defined activities are truly supportive of the rights and interests of workers, communities and other affected stakeholders and that rapid, continuous improvement is the norm: robust metrics are needed to track performance and outcomes. In support of this ambition, the following conclusions to governments and public financial institutions as well as business and private financial institutions are offered as a starting point in the development of more dynamic approaches. Whilst the primary responsibilities lie with these actors, civil society must also be actively involved in the evolution of just transitions finance, playing a crucial role in driving integrity, inclusivity, and accountability. As such, their capacities for engaging with various actors, instruments, and forms of finance should be supported and strengthened by both public and private financial actors. This report is a mere snapshot of the spectrum of finance and the potential for each actor across public, private, and blended finance domains to play their part in transforming the financial system and intentionally serving just transitions pathways. The just transitions finance ecosystem is still relatively small, and mainstreaming is the ultimate aim. The authors and many other organisations are actively collaborating on innovations, research, and sharing concrete examples of practice to further these aims. We invite you to join us in these collaborations.

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