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In the Asia-Pacific, a just transition towards a low-carbon economy would require reconfiguring energy policies, shifting investment frameworks and financial systems from prioritizing financial returns to respecting social and environmental sustainability, and forming inclusive partnerships with local communities.
The urgency of a just transition towards a low-carbon economy is critical for achieving the global objectives outlined in the Paris Agreement. A “just” transition must intentionally minimize adverse social, environmental and economic impacts while leaving no one behind.
Central to a just transition is the role of financial institutions, both private and development banks, given the role of finance in people’s lives and the fact that the provision of finance can be a powerful means to ensure justice and equity for both people and the planet. Financial institutions fund infrastructure like roads or power plants and shape national economic policies. These institutions are also critical to addressing the socio-economic implications of such investments, particularly for individuals experiencing situations of vulnerability.
The large and diverse Asia-Pacific region represents more than half of the global energy consumption, 85% of which still relies on fossil fuels. The continued dependency on fossil fuels is partially shaped by the investment portfolios of financial institutions in the region, with renewable energy representing barely 14% of Asian banks’ energy financing during 2016-2022. In addition, renewable energy in the region is only projected to grow six percent by 2040, while energy insecurity is heightened by the region’s increasing reliance on fossil fuel imports. A shift towards more just financing for the transition will require reconfiguring energy policies and energy investment portfolios with non-negotiable justice elements.
There is an evident shift in focus from the necessity of integrating just transition measures to the methods of doing so. The main question is no longer “why” but rather “how” to swiftly move towards a just, equitable, and inclusive energy transition.
Below are four key takeaways to address just transition challenges that emerged at a Feminist Finance Forum recently held in Bangkok.
By partnering with local communities, civil society, and researchers from the outset, financial institutions could better understand how the transition affects different groups, particularly those experiencing vulnerability connected to their age, gender, ethnicity, and abilities.
A refined understanding of the local and regional contexts enables the design of measures that address the needs of those affected in a timely and context-specific manner. This leads to a more sustainable and effective transition towards a low-carbon society while addressing local energy needs.
Whereas there are some ongoing local partnerships with the financial sector in the region focused on understanding the social implications of transition investments, there is still the need for more inclusive participation and engagement in the planning and negotiation processes. Such partnerships could be able to support gender-transformative and just outcomes.
One of the main social opportunities expected from the transition is the potential generation of new green jobs. This expectation has focused the discussion on reskilling and upskilling the existing workforce. At the same time, there is also a recognition of the need to ensure a gender-equitable labor force for the clean renewable energy sector.
However, it is crucial to consider those directly benefiting from specific energy projects and the broader context to avoid reinforcing structural inequalities. This approach needs to move beyond the current focus on generating “green jobs” in the clean energy sector towards understanding people’s needs before, during, and after the transition in the different sectors.
Such an approach should include an understanding of potential and unavoidable negative social impacts (e.g., unemployment generated in the fossil fuel industries and potential consequences) and chained or indirect impacts and factors, including time lag for reskilling and upskilling the workforce, the feasibility of reskilling and upskilling and shifting responsibilities at intrahousehold levels, among others.
Protecting human rights in the Asia-Pacific region is essential for addressing the social impacts of the energy transition. With about 60% of the global population, this region faces significant human rights challenges, including repression of environmental and Indigenous defenders.
In particular, the inclusion of Indigenous peoples in policy decision-making concerning their rights remains a challenge in the region. The recent effort by ASEAN countries to develop a regional declaration of environmental rights was tainted by the absence of Indigenous Peoples as part of the working group. Tools to promote the protection of human rights within investments in the energy transition should be a crucial part of the investments’ decision-making.
Many financial institutions and investors in the region acknowledge the need to shift from an investment framework that prioritizes profit to one that intentionally leaves no one behind and respects the environment.
There is a need for a specific framework and availability of gender-disaggregated data alongside an investment pipeline of socially inclusive green energy projects.
A key element of such a framework is a legally binding taxonomy to help integrate social implications into financial operations tailored to the realities of the Asia-Pacific region. Such taxonomy can be built for instance based on the Just Transition Finance Tool, developed by the International Labor Organisation and LSE Grantham Research Institute for Climate Change and the Environment, and the EU Taxonomy for sustainable activities while considering the specific regional contexts.
Beyond a taxonomy, a comprehensive action framework to ensure that financial systems do not only prioritize financial returns over social and environmental sustainability. Such a framework should also curb and hold accountable those promoting or implementing greenwashing. The framework should include multiple instruments, including regulations on due diligence and integration of just transition into ESGs for financial organizations.
Although not new, these four elements provide guidance for financial institutions to maximize their role in ensuring a just transition in a region that, though diverse and challenging, also holds tremendous promise for a change toward a low-carbon economy.
This piece provides reflections from the Feminist Finance Forum 2024, held by the Economic and Social Commission for Asia and the Pacific of the United Nations (UN ESCAP) in Bangkok May 7-8. SEI co-organised a session to discuss the role of financial institutions in ensuring a just transition in the region. Participants included financial, research, and civil society organizations operating in the region. They reflected on the importance of understanding the socio-economic effects associated with the energy transition for financial institutions to ensure the effectiveness of their investments
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