Essential ESG: Episode 2 – A just transition to a net zero economy

Phoebe Wynn-Pope, Head of Responsible Business and ESG

Eloise O’Brien, Associate, Responsible Business and ESG

This podcast is recorded on the lands of the Wurundjeri people of the Kulin nation.

Phoebe: Welcome to another instalment of Corrs’ Essential ESG podcast. I’m Phoebe Wynn-Pope, Head of Responsible Business and ESG and my co-host today is Eloise O’Brien, an Associate in our Responsible Business and ESG Practice. Hi Eloise.

Eloise: Hi Phoebe great to be here.

Phoebe: Eloise this episode we are talking about the concept of a ‘just transition to a net zero global economy’. This is a really difficult concept isn’t it and one that lots of people and organisations are struggling with. So what we thought we would do today is introduce a concept of a ‘just transition’ and talk about three particular elements of it for listeners to consider in their day to day work and these include:

1. Avoiding unintended consequences of decarbonisation.
2. Consideration of indigenous rights and ensuring that free, prior and informed consent is taken into account.
3. And dangerous work in green industries – thinking about what that actually looks like and how we understand ‘green’ to be good.

And finally, what organisations should be doing about it?

Eloise: This is a really difficult topic and a difficult concept I think because in talking about a ‘just transition’ we grapple with the many complex intersections and tensions between some of the key environmental, social and governance issues that businesses face today and I think while the climate emergency is unsurprisingly the foremost issue on the agendas of governments and businesses globally there is no denying that the transition to net zero will be the defining challenge of our time.

But we can’t just turn off the tap, we need to navigate the pathway to net zero in a way that ensures the social impacts of decarbonisation are taken into account.

Phoebe: And this is where the idea of ‘just transition’ comes from. How do we move to net zero and be fair both within our own economy and within the global economy and how is it possible to be fair when we know that people will lose their jobs, there are going to be industries that are going to be left behind and what are the things that we need to be thinking about as we do this.

Eloise: That’s right Phoebe and that’s exactly the problem. We know the most catastrophic impacts of climate change will disproportionately affect vulnerable populations and individuals and exacerbate existing social inequalities. But equally the transition to a low carbon economy will also most severely affect vulnerable people and communities reliant on carbon intensive industries which are often overlapping groups and as we are already seeing in Australia communities dependent on emissions intensive industries will be hardest hit by the social and economic consequences of our transition away from fossil fuels over the next 30 years.

Phoebe: Yes, the transition to the net zero will radically alter the global economy and the prevailing social and economic and political structures and if not managed with due regard to human rights it will have severe and wide ranging social consequences and as you say deepen those existing social inequalities and dispossess and dislocate populations around the world. But a ‘just transition’ isn’t something that just came from a desire to be fair, did it – it sort of came through the international negotiation process.

Eloise: That’s right. The concept of a ‘just transition’ – which in essence is the idea that decarbonisation should be pursued in a way that doesn’t undermine human rights – that idea has been around for a while. In 2015 the ILO – International Labour Organisation – published guidelines for a just transition which were established in consultation and negotiation between governments, employers, workers and trade unions and last December at COP26 the US, the UK, Norway, Canada, New Zealand and all the EU member states signed the Just Transition Declaration which reflects the ILO guidelines and recognises the need to ensure that no one is left behind in the transition to net zero economies.

At its core, this concept of a ‘just transition’ requires businesses not only to manage and mitigate the physical impacts of climate change to their business, and the environmental impact of their business and their activities but also to act urgently to mitigate the social impacts of their decarbonisation strategies and, Phoebe, those organisations that don’t consider the social impacts of their sustainability measures are pretty likely to find themselves the subject of scrutiny from investors, regulators and consumers. Also they will open the door to significant reputational, legal and financial risks as these human rights risks crystallise for those businesses.

Phoebe: So while the risks, while the physical risks of climate change for vulnerable people and communities are increasingly self-evident, the transition to this low carbon economy introduces much more complex, opaque and multi-layered human rights issues. Particularly as we move to renewable energy for example, there are a number of social risks that businesses need to be aware of which brings us to one of the key elements for our listeners to think about which is how to avoid unintended consequences as we move into this decarbonised economy.

Eloise: That’s a really important point. The renewable energy is not necessarily risk free just because it’s green.

Phoebe: Could you touch on some of the issues we were talking about earlier and some of the risks that might arise as organisations shift to renewable energy?

Eloise: Yes, so there are a range of issues and risks arising in a space but research undertaken by the Business and Human Rights Resource Centre has recorded 200 allegations of serious human rights violations linked to renewable energy projects in the last ten years. These include land and water grabs, violations of the rights of indigenous people, the denial of workers’ rights to decent work and a living wage and of those allegations a pretty big percentage – 44% – are from the wind and solar sector.

Phoebe: Yes, these are major supply chain issues also associated with renewable energy that are of concern to us all and particularly to organisations required to report under the Modern Slavery Act, which we discuss in our episode on modern slavery reporting. So from the ‘just transition’ viewpoint what are the key human rights, some of the key human rights issues associated with renewable energy, and let’s start with solar.

Eloise: Solar is a great place to start. So in March this year the University of Nottingham’s rights lab published a report that warned increasing demand for solar energy – rapidly increasing demand in light of our net zero commitments – risks fuelling demand for products made with forced labour and we know that because polysilicon is a key input for most types of solar panels and approximately 60% of the world’s polysilicon is currently imported from China and about 45% of that is coming from the Xinjiang region where the risk of forced Uyghur labour is very high.

Phoebe: Yes, the US considers the risks of human rights violations in this region to be so great that it has actually banned the importation of goods from Xinjiang unless importers can actually prove that no forced labour was used. They are in the process of working out how you do that at the moment. Last year in 2021, the US customs impounded shipments of polysilicon from at least three suppliers sourcing from that part of the world. So this is a very serious problem and there are also similar issues in respect of the batteries used by electric vehicles and to capture and store energy generated from solar, hydro power, wind and other renewable energy sources.

Eloise: That’s right Phoebe. Between 15 and 30% of the cobalt in lithium ion batteries comes from artisanal mines in the Democratic Republic of Congo and the DRC is known to have pretty high rates of forced labour and child labour in those artisanal mines. I think it is important to understand, is it a product of poverty and economic necessity rather than state-sanctioned policy. This raises pretty complex issues for organisations trying to understand the human rights risks in their supply chains and these risks are often obscured in the very lowest tiers of those supply chains which goes to our point earlier, Phoebe, that it is the most vulnerable – the people at the bottom of those supply chains, the people in vulnerable jobs and vulnerable work – who are most likely to suffer violations of their human rights in the transition to a low carbon economy and of course this is coupled with the fact that often these cobalt mining operations in the DRC have some pretty serious corruption issues.

Phoebe: Of course different organisations are managing these risks in different ways acknowledging their limited oversight and access to these parts of their supply chains is very complex but what should be acknowledged is that they are deep and intractable social issues that require specialised human rights advice and long term strategies to address them. So it needs to be recognised I think that the market will, I feel confident, find a path to slavery free solar in the next few years but it is going to be difficult and it is going to require a really concerted effort.

This brings us to our second key element in thinking about Indigenous rights and ensuring a just transition and I’m sure it won’t surprise listeners that the transition to renewables has impacted on the rights of Indigenous peoples all around and communities in different ways all around the world, so we’ve seen projects that have displaced communities from their ancestral lands. In some cases, renewable energy projects were developed without the free, prior and informed consent that is a right for Indigenous communities to have. It makes it difficult to think about this ‘just transition’ in a way that is really all encompassing.

Eloise: Yes that’s certainly true in parts of South East Asia, Phoebe. We’ve seen Indigenous populations that were denied land rights and inhibited from the use of that land for customary and communal purposes. There are instances of laws in certain parts of South East Asia where virgin forest has been classified as ‘vacant land’ and the government has taken possession of that land and used it to develop renewable energy projects without the free, prior and informed consent of the local Indigenous populations and therefore preventing those populations from engaging in culturally significant activities on that land.

Phoebe: Yes, closer to home many renewable energy projects in Australia are being proposed and developed on land which is subject to First Nations rights and interests and it will be important as we move forward to make sure that these rights and again, that the free, prior and informed consent and there’s a whole framework that exists around that concept and we’ll be covering that in an additional podcast, that is actually taken into consideration strongly to ensure that the cultural and social and community rights of Indigenous people are respected as we develop and go forward.

Eloise: It certainly won’t be a silver bullet for protecting human rights and the transition to net zero but at a minimum good renewable energy projects and green development should have a clear strategy for early engagement with the local community and especially with traditional owners of the land. So when we are building on and traversing their lands to establish renewable energy resources we are, as you say, gaining the free, prior and informed consent of those populations and following appropriate processes. Organisations grappling with Indigenous rights would be well served by engaging experts who understand the principles of free, prior and informed consent and what it requires of government and business and how it should be implemented, and as you mentioned Phoebe we are going to do a separate future episode on FPIC as it is known, which you should certainly tune into if this is something relevant to your organisation.

Phoebe: And our third consideration for today, just as if that wasn’t enough already, is that you mentioned that part of the commitment to a just transition also requires a provision of decent work in green energies. Is there any work that is not decent work? Aren’t we able to assume that green jobs are safe jobs? What did you mean by that?

Eloise: So, we touched on it in relation to cobalt mining in the DRC earlier, so the conditions in which the cobalt is mined often pose serious threats to human rights and similar issues arise in the sourcing of copper, aluminium, nickel and other minerals which the IMF, the International Monetary Fund, has predicted a surge in demand for as the economy transitions, the global economy transitions to clean energy resources. The recycling industry is another example of a green industry that presents pretty significant risks to the health and safety of workers. So recycling is critical to reducing landfill, but in 2021 the UK’s health and safety regulator highlighted that workers in this industry are exposed to increasing occupational health and safety risks and have a fatality rate 17 times higher than the average across most industries in the UK, so again as organisations transition to renewable energy and improve their recycling practices and waste processing, you need to be thinking about and assessing and mitigating the social risks associated with your sustainability measures and thinking about whether the jobs in that industry are posing risks to health.

Phoebe: So that leads us to talk about some of the steps organisations can take. We know that it is not as simple as ‘green equals good’ even though green is definitely the way forward and while organisations need to develop their net zero strategies with urgency necessitated by the acute climate crisis we are all facing, these efforts mustn’t come at the cost of people and communities.

So the next step is really thinking about what the starting point should be for organisations to get this right. Organisations need to take an integrated approach to assessing and managing ESG risks and opportunities to avoid these unintended consequences we have been talking about and to be in a position where you can feel relatively confident that you have considered the relevant environmental, social and governance issues. So in essence, this means ensuring that the E, the S and the G are not siloed within the organisation, undertaking regular and rigorous assessments and scenario testing with respect to the organisation’s key social environmental and governance risks and opportunities and framing up your ESG strategy around clearly defined principles aligned with your organisation’s corporate strategy and risk appetite. Without this framework you will find yourself fighting fires and having no clear strategy or direction in your work. So we really need to be thinking about developing those strategies and building forwards.

Eloise: Yes and hopefully as we’ve managed to show in this podcast, these are not binary issues they are very complex and I think at its core what the ‘just transition’ requires is an understanding that human rights can’t take a back seat in the race to net zero, they can’t be de-prioritised. So what’s good for the environment needs to also be good for people and it’s our biggest risk to assume that it will automatically be so.

Phoebe: Thank you for listening to another instalment of our Essential ESG podcast. If you have enjoyed this podcast don’t forget to subscribe wherever you listen to your podcasts to be notified of future episodes.