Investing in Climate Change

How Can Investors Support a Just Transition to a Low-Carbon Economy?

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To understand the environmental justice movement and its call for a “just transition” to a low-carbon economy, one could travel to Louisiana, where toxins pumped into the air by a large concentration of petrochemical plants have earned one swath of the state the nickname “Cancer Alley.” The people who live in Cancer Alley are predominately Black and poor, which is not a coincidence or a one-off.

The Environmental Protection Agency defines environmental justice as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income” with respect to development and environmental laws. While we frown upon environmental injustice in the US, research has found that disadvantaged communities of color are far more likely to live near major polluters and suffer the health consequences.

Local and Global Inequities: COVID-19 and Climate Change

Over the last six months, COVID-19 has laid bare a multitude of racial disparities that have led to worse outcomes for virus sufferers in communities of color, including higher death rates. One contributing factor to this trend is higher rates of preexisting conditions that can exacerbate the virus’s effects, such as asthma and pulmonary illnesses—conditions that research has linked back to air pollution exposure.

While air and water pollution are localized environmental justice issues, the climate crisis epitomizes global inequity. In this case, development and consumption in advanced economies disproportionately damages the lives of those with the smallest carbon footprint, many of them marginalized groups. For example, poor farmers in Central America have seen their crops devastated by rising temperatures and drought, leaving them vulnerable to hunger.

Development and consumption in advanced economies disproportionately damage the lives of those with the smallest carbon footprint, many of them marginalized groups.

Building Back Better: Investing in a Just Transition

COVID-19’s economic devastation has hit disadvantaged communities harder, but it also presents an opportunity to “build back better.” This includes ensuring that the transition to a low-carbon economy does not leave marginalized communities behind. For investors, this means connecting climate action with inclusive growth and sustainable development—for example, by investing in green jobs in places that have been both economically dependent on and adversely affected by fossil fuel production and use.

More specifically, the “Investing in a Just Transition” initiative of the London School of Economics and the Harvard Kennedy School has created a guide outlining five areas of potential impact:

  1. Investment strategy
  2. Corporate engagement
  3. Capital allocation
  4. Policy advocacy
  5. Learning

For example, CDC Group, the UK’s development finance institution, has established a new renewable energy company in India, where there is a major push to transition the country off of coal power. The company, called Ayana, is working to overcome a major skills gap in the solar sector by helping to train local women, who face more challenges than men in entering the green jobs market.

Deliberate strategies such as these can help ensure a just transition, where disadvantaged populations share in both the environmental and the economic benefits of a new energy economy.

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