Banks urged to support transitions to create a sustainable economy

It points out that, until recently, the social dimension of climate action, including new green job opportunities and the potential risks of ‘stranded workers,’ has not received sufficient attention. The report outlines ways in which the UK could speed up the delivery of a ‘just transition’, climate action that generates a positive social impact, particularly for workers, consumers, small businesses and communities.

The report draws on research that was supported by HSBC and involved analysis of key transition trends, particularly for jobs and skills. Dialogue events were held in Belfast, Birmingham, Bristol, Cardiff, Cornwall, Edinburgh and Leeds on the role that banking could play to support a just transition.

Nick Robins, Professor in Practice of Sustainable Finance at the Grantham Research Institute and co-author of the report said “The UK has a once in a generation opportunity to create a new, more resilient model of prosperity in the recovery from COVID-19. The just transition lens provides banks with a new way of deepening their existing efforts on climate risks and green finance”.

Bob Wigley, Chair of UK Finance which was a partner in the development of the report, said “This important report sets out clear steps for how the banking and finance industry can play a central role in delivering the UK’s net-zero goal through a just transition. UK Finance commits to acting on its recommendations.”

The report focuses on the need for the transition to the net-zero economy to be inclusive and ‘placed-based’. This means ensuring that decisions about climate action take account of the key needs of stakeholders, particularly workers, communities, small businesses and consumers. In addition, the transition will need to respond to the different requirements across the country, enabling local action and investment.

Sophia Tickell, co-author of the report added “Banks can play a key role as anchor financial institutions in regional initiatives to drive ahead with the just transition. Working with small and medium sized enterprises will be particularly important given their critical role in employment generation and social cohesion.”

The report shows how the COVID-19 crisis has amplified the need for a just transition. It estimates that the impact of the transition to a zero-carbon economy will have a bigger impact on jobs in some of the country’s most deprived areas.

Andrew Sudmant, Research Fellow at the University of Leeds said “We estimate that around 14 per cent of jobs in constituencies in the top 10 per cent for multiple deprivation will be in greater demand in the shift to a net-zero economy, a positive boost from the transition. Another 13.5 per cent of jobs in these places will require reskilling, particularly in the manufacturing sector”.

The report makes a set of recommendations to banks seeking to support the just transition:

• Board and senior executive leadership commit to ensure that the just transition is incorporated into institutional strategy and culture.
• Banks make the just transition central to their core purpose and culture, by embedding it in strategic objectives and their business models.
• Banks outline a clear institutional action plan for how they plan to operationalise the just transition, covering culture, governance, risk, opportunity, and compliance.
• Banks develop a core portfolio of financial products for different customer groups that enable them to achieve net-zero in a socially inclusive manner.
• Banks work with key stakeholders in different parts of the country to respond to the diverse needs for the just transition, for example, by helping to finance place-based climate action.
• Banks engage with policymakers to encourage the right enabling environment for the just transition and promote system-wide innovation.

The report also highlights the importance of partnership between finance and the government, and sets out a number of policy recommendations, including extending the mandate of the British Business Bank to support SMEs in a just transition, establishing a National Investment Bank with an explicit sustainability mandate, and issuing sovereign green bonds to finance a just and sustainable recovery programme.

Ian Stuart, CEO for HSBC UK said “HSBC UK is committed to playing its part in leading the transition to a low-carbon economy. We have funded this research as we understand the crucial role banks have in helping the UK achieve its net zero emissions target, as well as navigate a recovery from COVID-19 that supports a just transition.”

“In addition to reducing the environmental impact of our own operations, we are leaning in to support businesses across the UK, engaging with them on the transition as well as providing innovative sustainable financing. We are doing this whilst helping young people develop the skills needed for a sustainable future through our long-term charitable partnerships.”

The report builds on growing momentum in the financial sector to connect action on climate change with social inclusion. More than 150 institutional investors, with over US$10 trillion in assets, have now committed to supporting the just transition through their shareholder engagement and capital allocation activities.