Banks have a crucial role in supporting a 'just transition' to net zero economies. Clearer frameworks are needed to meet the opportunities and challenges.

Private sector involvement is essential to mobilise the trillions of dollars necessary to transition to an inclusive net zero economy. Clifford Chance, the Institute for Human Rights and Business (IHRB) and the CDC Group have jointly authored a white paper titled, 'Just Transactions, a white paper on just transition in the banking sector', which addresses how banks can support a 'Just Transition' through climate-related financing activities, and the challenges and opportunities that this presents given the range of stakeholders to consider and the balance that needs to be struck between climate action and achieving equitable and inclusive outcomes for all. 

The research team took account of interviews with representatives from multilateral development institutions and commercial banks in developing the White Paper, the purpose of which is: (1) to explore the key reasons why just transition framing is relevant to commercial banks; (2) to map the state of play in the banking sector in addressing the social and human rights dimensions of climate action; and (3) to offer suggestions for how banks can incorporate just transition considerations into their internal structures and systems as well as across their relationships with clients and their transactions.

The paper concludes that further work is necessary and useful to identify gaps in existing frameworks in relation to strategy development, policy making and implementation through decision-making and transactions, to build a framework set of principles whereby a Just Transition lens can be integrated into banking practices.

Rae Lindsay, Partner at Clifford Chance said: "With the ever-growing rank of net zero pledges, and financial regulatory instruments for managing the green transition, banks recognize the importance of their role in achieving a sustainable, and fair climate change transition. Many banks haven't yet adopted specific Just Transition policies or strategies and are considering how to use existing frameworks and tools to do so. With a wide range of stakeholders, objectives and impacts to balance, informed guidance is necessary when incorporating a just transition lens into governance around sustainable finance."

John Morrison, CEO of IHRB said: "The transitions ahead will have significant social as well as climate impacts, and we must ensure they are just and fair for both workers and communities.  Following COP26 and the commitments made, to use significant financial leverage to achieve net zero in time, banks must integrate human rights into their climate transition strategies. The Just Transactions report sets out how this can be done."

Amal-Lee Amin, Director Climate Change, CDC Group said: "As economies transition to net zero emissions, the domestic banking sector will need to understand the implications for their balance sheets as well as how through their lending they can support a just transition, particularly for those workers and communities that might be negatively impacted. As a development finance institution, we are increasingly supporting banks to build their capabilities for identifying, assessing and managing climate risk, and how to integrate a focus on the just transition through their lending."

To mark the launch of our "Just Transactions" White Paper and celebrate Human Rights Day, Clifford Chance, IHRB and the CDC Group held an event to explore the relevance and implications of the just transition for the banking sector. Watch the full event here. Human Rights in Focus: Cop26, Just Transitions and the Financial Sector.

ENDS

Notes to Editors:

  1. Read the report: www.cliffordchance.com/justtransactions 

  2. For further information about IHRB: https://www.ihrb.org/focus-areas/just-transitions/just-transactions-banking-sector 

  3. For further information about CDC: https://www.cdcgroup.com/en/ 

  4. Clifford Chance is one of the world's pre-eminent law firms with significant depth and range of resources across five continents. As a single, fully integrated, global partnership, we pride ourselves on our approachable, collegiate and team-based way of working. We always strive to exceed the expectations of our clients, which include corporates from all the commercial and industrial sectors, governments, regulators, trade bodies and not for profit organisations. We provide them with the highest quality advice and legal insight, which combines the firm's global standards with in-depth local expertise.

For further information about Clifford Chance see www.cliffordchance.com 

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