Asia Pacific’s just transition

Asia Pacific’s
just transition


A business call to action



Kirsty Haymon

Kirsty Haymon
Asia Pacific Sustainability, Social
Managing Director, PwC Australia
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Business leaders in the Asia Pacific region are on the brink of a historic moment in the battle against inequality. How they respond could have far reaching consequences for the region’s economies and people.

As the shift towards net zero gathers momentum, Asia Pacific countries face a formidable combination of pressures; challenged to deliver socioeconomic development, while meeting their nationally determined decarbonisation targets. Companies are also being forced to adapt to the impacts of climate change on their business operations, risk and profitability. These pressures are only set to intensify.

The Intergovernmental Panel on Climate Change (IPCC) suggests 11 countries across Asia are already exposed to high energy insecurity and industrial systems risk, adding further climate change uncertainty as their populations grow.1 Even without the effects of climate change, the World Bank estimates that East Asia and the Pacific will have 11.8 million people living in poverty by 2030; and this number increases by nearly 64% under high climate change scenarios.2 The wider implications on regional economies, with a potential GDP contraction of 26.5% under similar scenarios3, means it’s simply not an option to do nothing.

“Climate change cannot be addressed with simple single-sector, single-country, or single-organisation solutions.”

Akihiko Nishio, Vice President of Development Finance, The World Bank4

The World Bank also indicates that rapid and inclusive development can alleviate climate change vulnerability; the region’s net zero ambitions are best achieved when people, particularly the poorest, are provided with the opportunity to adapt to climate change impacts. Without this, the risk of stranded assets could lead to an increase in stranded workers and stranded communities.5 So how can - and why should - businesses ensure that no-one gets left behind in the charge towards a net zero future?

 


Simply put, a just transition means achieving net zero targets while considering the social and economic impacts on individuals, workforces and communities.6

  • A combination of forces is prompting Asia Pacific businesses to prioritise their transition towards a net zero economy - often in advance of government action due to stakeholder pressure and reputation risk - while simultaneously adapting to the impacts of climate change. In the collective race towards net zero, it’s important that no social group or community is left behind.
  • In creating a more environmentally sustainable global economy, a just transition is essential. The transition must embed a respect for human rights, contribute to sustainable employment, and develop resilient communities.
  • While Asia Pacific governments have a fundamental role to play, businesses also play a significant and crucial part in the solution. This should include inclusive opportunities for stakeholders who are most impacted by the shift away from carbon intensive activity, while also delivering added value for employees, shareholders and other stakeholders.
  • With non-energy sectors contributing more than 40% of greenhouse gas emissions, and nationally determined contributions (NDCs) identifying multi-sector mitigation plans, the roles and responsibilities do not solely lie with energy companies. The transformational change required will affect us all.7

Numerous organisations have created frameworks to achieve such outcomes. Amongst these are the International Labour Organization’s8 guidelines, the Council for Inclusive Capitalism9 and the Just Transition Initiative.10 While each framework varies, a common thread is that a just transition is only possible when we prevent and minimise the social injustices that could stem from a net zero transition, particularly in relation to the most vulnerable groups in society. The net zero pathway may also provide opportunities to improve processes, services, knowledge and innovation, to promote productivity and resource efficiency, as well as to diversify and revive communities.

Unfortunately, data from the Climate Action 100 March 2022 Benchmark assessments shows that a majority of the largest global emitters are not sufficiently prepared to deliver a just transition. While 44 companies - representing 75% of those assessed - globally have publicly acknowledged the importance of a just transition as part of their net zero strategies, only 11 have taken proactive steps in developing policies and plans.11 Similarly, the World Benchmarking Alliance indicates that only nine companies have made any substantive progress towards implementing decisive plans to support and influence the shift to a just, societal transformation, according to its 2021 Just Transition assessment of 180 companies in high emitting sectors.12

As part of a net zero transition that prioritises justice and fairness, assisting the developing world through this transition is both a gesture of global solidarity and an ethical duty. The private sector has a role to play in enabling a successful low-carbon transition.13 While developed markets are likely to have the finances to reach their long-term climate goals, in emerging markets the funding gap remains wide. It is estimated that emerging markets require almost US$94.8 trillion to transition; there is an estimated US$83 trillion opportunity for private investors.14 This is an opportunity for Asia Pacific business leaders to consider inclusive opportunities for stakeholders who will be most impacted by the shift away from carbon intensive activity, while also delivering added value for employees, communities and shareholders.

We see four key considerations for the private sector to address transitional risks and put people at the heart of their decarbonisation plans.

Business action for a just net zero transition


Engage broadly with stakeholders

Consultation with stakeholders (including workers, unions and workforce representatives, governments, impacted communities and civil society organisations) to negotiate a strategic direction that is both fair and equitable is fundamental for a just transition. Such dialogue will not only inform the way forward, but can reduce risks and improve transition outcomes. Engagement at all stages, from initial discussions on climate adaptation and net zero ambitions, to planning, implementation, monitoring and reporting at sectoral, regional, national and local levels will help maximise positive impacts.

A participatory approach to developing company-level climate action is important for workers and communities to create new industries, jobs and social services provisions that are responsive to stakeholder needs. Without a meaningful voice in the planning process, the right to organise and collectively bargain, equitable outcomes are impeded. In contrast, companies that engage in social dialogue tend to avoid costly industrial conflict and have higher productivity, leading to resource productivity and lower costs.

Establish a workforce for the future

Companies needing to transform or diversify their operations - as a result of government-led net zero policy or internal net zero strategy - should consider implications on their workforce. Ideally, any investment in new operations or infrastructure should lead to secure, high-quality jobs that deliver benefits and a living wage. This may also represent a significant opportunity to recruit and invest in historically underrepresented groups and break down long-held barriers to career progression. Strong labour practices and employee engagement will enable companies to have a competitive advantage and assist with productivity and retention.

In parallel, where existing employees can be retained and redeployed, they should be guided into emerging roles through reskilling or upskilling. Working with local governments and vocational institutes to forecast skill needs and foster a cross-sector collaboration can reduce the need for additional social protections.

Develop sustainable value chains

Recognising the complexity of their value chains, business leaders should plan for potential implications on suppliers as a result of their net zero transition. Managing expectations and communicating changes to policies and procurement practices is necessary to support them in their own efforts to mitigate risks to workers. In a globally connected world, effectively engaging supply chains is key to mitigating impacts and seeking competitive advantage.15

The likelihood of altered demand for certain products and services is high, and smaller or lesser-resourced suppliers may find the changing landscape particularly difficult to navigate. In addition to championing human rights related to conditions of work, pay, and occupational health and safety, companies should support formalisation of work through their supply chains through training, capacity building, certification and advocating for legislation.

Build resilient communities

The ripple effect of a company’s net zero transition will be particularly acute in areas where assets need to be decommissioned. This can lead to large-scale retrenchment, particularly in communities dependent on high emitting sectors, which should be managed through a time-bound plan for closure and implementation of social protection measures where alternative employment opportunities cannot be identified locally.

There is a need to drive investment in community economic diversification or renewal to maintain economic growth. This may include concerted efforts to regenerate infrastructure and preserve local biodiversity, supporting local development initiatives, and establishing ongoing partnerships for regional grants to drive regional growth and social stability.

These four themes will be the subject of further industry collaboration to promote and enhance Asia Pacific’s just transition, to ensure it’s not just a transition.

Listen now or subscribe to catch up later.

To hear more about this topic, you can listen to PwC’s podcast ESG: Defining Asia Pacific’s Future. In season two we focus on Asia Pacific’s just transition to net zero.

References

1. International Panel of Climate Change. 2022. Mitigation of Climate Change.
2. World Bank Group. 2020. Revised Estimates of the Impact of Climate Change on Extreme Poverty by 2030.
3. Swiss RE. 2021. The economics of climate change: no action not an option.
4. Nishio, A. 2021. World Bank Blogs, When poverty meets climate change: A critical challenge that demands cross-cutting solutions.
5. Just Transition Centre. 2017. Just Transition: A Report for the OECD
6. Institute for Human Rights and Business. 2023. Website.
7. Hughes, K & Rescalvo, M. 2021. ADB Briefs, Just Transition Beyond the Energy.
8. International Labour Organization. 2015. Guidelines for a just transition.
9. Council for Inclusive Capitalism. 2021. Framework for Company Action.
10. Just Transition Initiative. 2021. A Framework for Just Transitions.
11. Climate Action 100. 2022. A need for robust just transition planning.
12. World Benchmarking Alliance. 2021. Just Transition Assessment 2021.
13. Winzenried, S & Purdie, S. 2022. Asia Pacific’s burning challenge: A just and orderly energy transition.
14. Standard Chartered. 2022. Just in Time: Financing a just transition to net zero.
15. PwC Australia. 2023. The S in ESG: Spotlight on the social element of supply chains.

Contact us

Kirsty Haymon

Asia Pacific Sustainability, Social, Managing Director, PwC Australia

Ivy Kuo

PwC Asia Pacific Sustainability Leader, Partner, PwC China

Jeremy Prepscius

Asia Pacific Sustainability, Sustainable Supply Chains, Managing Director, PwC Hong Kong

Barry Murphy

Partner, Global Sustainability Tax, Legal and Workforce Leader, PwC United Kingdom

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