The expert magazine of Ostrum AM

Nathalie Beauvir-Rodes, senior impact bonds analyst, and Olivier Vietti, senior fixed-income fund manager at Ostrum Asset Management, tell us about the just transition and how it translates into responsible investment.

Why must the energy transition also be just?
Climate change is fueling a number of systemic risks that have major repercussions for both ecosystems and people, as well as our economic fabric and our regions. Economists agree that the transition towards a sustainable, low-carbon and resilient economy is the only feasible way forward for the long term. Yet in the short term, these drastic changes in our economic models are set to trigger major and disparate effects on jobs and land management, for both regions and countries as a whole. Areas with higher fossil fuel dependency will suffer more drastic potential human impacts. The energy transition could create 24 million new jobs in the power sector out to 20301, yet 6 million jobs could also be lost as certain activities in and around the fossil fuel industry become obsolete, thereby affecting people, labor market areas and regions that are sometimes already struggling. This situation therefore calls for energy transition strategies that also safeguard the local economic and social fabric. The goal must be to step up the transformation of our energy mix and our industrial make-up, while offering job conversion initiatives and preserving staff’s employability, modernizing infrastructure and creating wealth locally. The Paris Agreement acknowledges the crucial need for a swift and fair energy transition. Investment strategies on the climate transition therefore need to combine all dimensions of responsible investment – environmental, social and governance aspects (ESG).

1 International Labour Organization

How can we reconcile the climate transition and social benefit?  
The just transition sits at the intersection of environmental risk management and initiatives to address social risks. Financing the just transition requires a three-dimensional analysis of issuers’ transition practices and strategies i.e. cutting back the carbon footprint (use of renewable energy, pursuing energy efficiency, extending products’ lifecycle, encouraging clean mobility, etc.), promoting positive social impact (jobs, quality of social dialogue, training, education, healthcare, access to digital, etc.) and safeguarding ecosystems and local economies (environmental protection, promoting the local economic fabric, preventing pollution, sustainable resource use, developing green public infrastructure). These three priorities resonate with several United Nations Sustainable Development Goals, for example affordable and clean energy (SDG 7), decent work (SDG 8) and reduced inequalities between and within countries (SDG 10). This approach ensures both the incorporation of the best social practices in developing green infrastructure, but also the inclusion of workers and communities that work in high carbon-intensity sectors, as well as the protection of individuals and assets in the face of increasing climate impacts. This applies to all business sectors, and the transition to a low-carbon resilient economy requires this holistic and inclusive approach.
Can investing in the just transition offer a performance driver?
It is important to simultaneously tackle the issues of climate change, transition strategies and the social challenges they raise (exclusion, growing inequality) to achieve a better grasp of the risks involved. This more detailed and comprehensive approach is also a way to pinpoint the most commendable companies and projects that can create value over the long term. Successfully staging the ecological transition requires massive investment in innovation and new technologies: this will also trigger major disruption that will fundamentally impact the nature of our jobs. As the transition to a low-carbon economy picks up the pace and the material effects of climate change worsen, the just transition will offer investors an increasingly effective strategy to prepare for the economic and social effects in their portfolios. This is precisely where sustainable bonds are most relevant, as they fund both projects related to the environmental transition and initiatives to address societal challenges. A just transition is also an opportunity for investors to fully roll out their own CSR policies to meet their climate and social impact pledges.

  • Nathalie Beauvir-Rodes

    Nathalie Beauvir-Rodes

    Senior impact bonds analyst

  • Olivier Vietti

    Olivier Vietti

    Senior fixed-income fund manager

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