If we're serious about achieving a net zero economy, we need to think in more rounded terms about people and planet, writes Kieron Boyle
According to the Rockefeller Foundation, we need public and private investors to deploy around $3.8 trillion every year, to achieve a transition to a net-zero carbon economy. Currently, only a fraction of that – about 16% – is being deployed.
The great question for our times is whether we're going to close that gap fast enough.
If you ask anyone, anywhere in the world today about the need to transition to net-zero, they are likely to say that the transition might be helping the planet but will not do much good for them and their communities.
This is more than a marketing challenge. It speaks instead to a necessary and underlying truth. We won't achieve the net zero transition unless the politics work too.
In global finance centres, we are seeing pushback on green finance that threatens hard-won progress. In emerging market economies, there is a growing – and legitimate – anxiety that a narrow focus on climate could hamper broader prospects for social and economic development.
The answer, clearly, isn't to stop. Future generations would never forgive us. Rather we need to think in more practical terms. How do we align environmental goals with improved social outcomes? How is this informed by the perspectives of those who are most impacted by change? And what does this look like for capital markets that have the power to unlock the trillions of investment needed to transform the global economy?
At the Impact Investing Institute, we have identified two key learnings from working with global financial institutions on these questions over the last years. First, many investors that can deploy capital at scale are not clear on the steps they need to take to tackle both environmental and social issues at the same time.
Second, investors' understanding that people and communities need to be at the heart of the transition is growing. But translating that into practical actions can feel daunting. It is not easy to understand the social implications of the transition and how these should influence investment decisions.
Fortunately, there are now practical tools to help investors.
For example, we recently launched a set of Just Transition Criteria, a first-of-its-kind approach to help financial markets actors align their investments with the three key elements of a just transition — advancing climate and environmental actions, improving socio-economic distribution and increasing community voice.
"Many investors that can deploy capital at scale are not clear on the steps they need to take to tackle both environmental and social issues at the same time"
On a practical level, applying the Criteria both manages financial risks and seizes new economic opportunities. It means things like channelling capital towards the creation of decent jobs in decarbonised industries; providing access to affordable renewable energy; and supporting equal participation in greener supply chains for developing economies.
The Criteria were developed by 22 of the world's largest financial actors — from global asset managers to public development finance institutions — as well as civic society actors and NGOs like the International Labour Organization. They're now being deployed by investors around the globe.
For example, BlueOrchard's InsuResilience Fund invests in providers of micro-insurance that help smallholder farmers in developing economies protect their income against the effects of climate change. Working with 60 Decibels, a tech-powered impact measurement company, the fund regularly surveys the end-customers to ensure that micro-insurance products are adapted to their needs and affordable.
One of the world's largest asset managers, Schroders, launched the Schroders Real Estate Impact Fund in the UK, which invests in affordable housing, town centre regeneration and supporting increased employment in deprived areas. Their investment and asset management includes early and regular community engagement through consultations, surveys, and forums to provide feedback.
These examples show that if we're serious about achieving a net zero economy, we need to think in more rounded terms of people and planet. What is clear is that an investment approach focused on a just transition is likely to be the only transition that works at the pace and scale required.
Kieron Boyle is Chief Executive of the Impact Investing Institute.
