The mainstream investor community has finally come to grips with the financial and environmental risks that climate change poses to portfolios and long-term investment outcomes.
Institutions that collectively manage trillions of dollars in assets have endorsed action by governments, regulators, issuers and their own organizations to help assess and address the impacts of climate change on investments and the Canadian economy. We’ve rallied around the Paris Agreement, in which governments pledged to limit global warming this century to no more than two degrees above preindustrial levels and support the energy transition that the pledge implies.
But the weakness in how investors are assessing climate-change risk is the persistent separation of environmental concerns from social ones.
Anyone who doubts that the two are intimately linked should think long and hard about Doug Ford’s recent election win in Ontario and his pledge to rapidly undermine the foundations of climate-change action, both provincially and federally. That voters believed the claims that steep hydro rates can be blamed solely on renewable energy programs and that carbon pricing is uniquely responsible for the high cost of filling up your car is a reality that those concerned about climate change ignore at their own peril.
If we don’t start to talk about a “just” energy transition – one that doesn’t leave economically vulnerable workers and communities behind – we’re going to face even bigger hurdles ahead.
The idea of a just transition seems obvious on the face of it: If we’re going to address runaway climate change, we’re going to have to change the way we produce and use energy. And if we’re going to do that, we’re going to have to ensure that no region, community or group of workers bears the majority of the negative effects or captures the majority of the gains. Not just because it’s unfair. It’s also dumb. It’s not sustainable. If you leave people out of the process, eventually that’s going to come back and derail any transition well before it gets under way.
But the problem with a just transition, for businesses and investors, is that it can’t be done using clever spreadsheets and Bloomberg terminals. It can’t be done just by shifting assets from one sector to another. It can’t be easily measured, quantified, benchmarked or indexed. It’s going to require doing things a bit differently.
It’s going to require investors and businesses working together with stakeholders they may not normally have engaged: governments, civil society, trade unions, Indigenous leadership and academics, who can help develop solutions for communities, regions and sectors that need employment and economic opportunities and help identify new opportunities for private investment in those solutions.
It’s going to require businesses engaging in social dialogue with trade unions to find mutually agreeable solutions to redeploying workers and maintaining comparable employment and benefits in new business lines. The recently announced federal Task Force on Just Transitions, currently focused on the coal sector, is a positive step in that direction. We can’t just spout platitudes about potential new “green jobs” without also ensuring that those new jobs maintain or improve the wages, benefits, protections and opportunities on which workers and communities depend.
It’s going to require investors actively engaging with the companies in their portfolios to ensure that corporate management has a plan in place to support its work force, even as it plans new capital expenditures or winds down high-carbon operations such as coal-fired power plants.
Most importantly, it is going to require investors taking a broader view of the nature of risks to their portfolios – no longer just considering asset-level risks (i.e., how one company may be affected) but portfolio level and systemic risks and how those might also be mitigated by investment decisions and active ownership.
In the end, climate change is happening and it will force transitions on us one way or another. No single business, investor or, for that matter, premier can hold back that tide forever. But the choices we make – as businesses, investors, workers’ organizations and governments – will decide whether those transitions are efficient and fair or turbulent, unpredictable and painful.
Kevin Thomas is the executive director of the Shareholder Association for Research and Education (SHARE).