As thousands of large companies make the transition to a net-zero emissions economy by reducing greenhouse gases, they must not only decarbonize but also consider the real impacts of changes in their operations on their employees and the communities where they operate. Investors are now engaging companies to mitigate the economic risks related to labor costs and morale, reputational damage and social license to operate that could result from the transition.
The concept of a just transition seeks to optimize the benefits of the shift to a clean, regenerative and sustainable global economy, while minimizing associated social challenges. These include workforce retraining and compensation as well as the community impacts of facility changes. Just transition issues are aligned with global initiatives, including the United Nations’ Sustainable Development Goals, the Equator Principles and the final COP28 agreement. In the United States, the federal Justice40 Initiative aims to direct 40 percent of the overall benefits of climate-related government investments to underserved and marginalized communities.
Investor interest in climate justice is increasing, reflected in proxy voting guidelines and stewardship priorities from leading institutional investors. Just transition performance was publicly assessed for the first time in 2023 by the largest investor-led initiative Climate Action 100+ as an element of the Climate Action 100+ Net Zero Company Benchmark. The first proposal tracked by Ceres was filed with Marathon Petroleum by the International Brotherhood of Teamsters Pension Fund in 2022 and received a 16.2 percent vote of support. Proxy season 2023 saw strong momentum, with eight shareholder proposals filed, resulting in the noteworthy 32 percent vote on a proposal filed by Domini Impact Investments with auto parts manufacturer BorgWarner.
So far this proxy season, Ceres is monitoring nine proposals centered on the just transition and 11 addressing environmental justice in the context of climate change. The just transition proposals focus on how companies making the transition are treating and listening to workers and communities, while the environmental justice proposals also incorporate issues such as safeguarding indigenous and universal human rights. Investor Advocates for Social Justice (IASJ) is a leading filer of environmental justice proposals. Ceres is tracking six of these IASJ proposals in 2024, including at Honeywell and JPMorgan Chase.
Investors also understand that if labor and communities do not feel included in the benefits of the climate transition, companies will face opposition. For example, the recent United Auto Workers strike at the big three Detroit auto manufacturers was partially triggered by workforce concerns related to the shift to electric vehicles, costing the companies billions in lost earnings.
Just transition considerations are meant to fortify, not delay, decarbonization efforts by comprehensively reflecting the necessary scale and pace of change. Proactive stakeholder engagement is necessary to mitigate company and societal risks while achieving a just and economically favorable transition, marking a pivotal trend this proxy season.
Rob Berridge
Senior Director of Shareholder Engagement, Ceres
Amit Bando
Chief Economist and Senior Advisor for Just and Inclusive Economics, Ceres