The report, Financing climate action with positive social impact: How banking can support a just transition in the UK, is produced by the Grantham Institute at the London School of Economics (LSE) in partnership with UK Finance, with funding from HSBC and LSE's KEI Fund.

Under the Paris Agreement on Climate Change a ‘just transition’ will see the interests of workers being upheld in the shift to a resilient, net zero economy by 2050. The report highlights that in practice this means that to successfully combat climate change it will be necessary to design a transition that is fair and seen to be fair, that can uphold living standards, and generate a range of benefits for business and society.

This latest research is published as part of The Banking on a Just Transition project, a pilot initiative based on a process of research and collaborative dialogue between stakeholders, including banks and other financial institutions, as well as policymakers, business, trade unions and civil society. The project has included place-based consultation workshops in Belfast, Birmingham, Bristol, Cardiff, Cornwall, Edinburgh and Leeds.

The banking and finance sector will be crucial to making the just transition a reality. The Grantham Institute’s report sets out recommendations for how the industry can build on existing initiatives and support this goal:

Leadership: Board-level commitment to ensuring that the just transition is incorporated into institutional strategies and culture.
Purpose: Ensure the just transition is central to the industry’s core purpose and business model, and that it is embedded in its strategic objectives.
Strategy: Create a clear institutional action plan for how banks can operationalise the just transition.
Customers: Serve customers by developing a core portfolio of financial products and services that help them achieve net zero in a socially inclusive manner.
Place: Continue to work with key stakeholders in different parts of the country to respond to the diverse needs throughout the just transition.
Policy: Engage actively with policymakers to encourage the right environment for the just transition and system-wide innovation.
Partnership: Engage in dialogue with government, business, trade unions and civil society to integrate emerging needs and develop breakthrough partnerships.
Accountability: Report on progress towards our just transition goals in each firm’s Strategic Report in the Annual Report and Accounts.

Responding to the report, Bob Wigley, Chair of UK Finance, said: “Achieving the UK’s net-zero carbon target by 2050 is a difficult but critical target that requires coordinated action across industries. This important report from the Grantham Institute sets out clear steps for how the banking and finance industry can play a central role in delivering this goal through a just transition and we commit to acting upon its recommendations.

“As the UK now focuses on the economic recovery from the Covid-19 pandemic, there is significant opportunity for these growth measures to be aligned not only to the net-zero target but also to be approached in a fair, just and inclusive way. At the same time, if we are to build back better then we need to do so in a way that benefits regions, cities and communities the length and breadth of the UK.

“Banking and finance firms already play an important part in supporting local networks comprising of corporates, SMEs, local authorities, universities and other sources of expertise. As part of this, we will continue to work with the Green Finance Institute, as well as other new or repositioned investment institutions, to help mobilise capital in a way that takes account of local community needs. We also call on the government to back the report’s recommendations for how it can support the just transition.”

Jes Staley, CEO, Barclays: “The Grantham Research Institute report is a timely and valuable contribution as we take our own ambitious steps towards the transition to a low carbon economy. As a British universal bank, we recognize the need to sustain and support livelihoods and communities in the UK and around the world and it is critical that we align this priority with our efforts to combat climate change. With thoughtful strategy and partnership, the decarbonisation of the economy can go hand in hand with building a thriving, resilient future for all.”

Paul Ellis, CEO, Ecology Building Society: “As we emerge from the disruption wrought by Covid-19, the banking sector has a critical role to turn this crisis into a defining moment in the urgent fight against climate change, delivering the financial solutions that are essential to support a green recovery and meet our net-zero carbon targets. However, the transition to a low-carbon economy needs to be approached in a way that benefits everyone, reducing the inequalities which have an environmental cost. Ecology has been building a greener society for nearly forty years, providing values-based finance to support positive environmental and social impact. The Grantham Institute’s important report sets out a route map for banking providers to deliver a sustainable, fair and inclusive future.”

Ian Stuart, CEO, HSBC UK: “HSBC UK is committed to playing its part in leading the transition to a low carbon economy. We have funded this research as we understand the crucial role banks have in helping the UK achieve its net zero emissions target, as well as navigate a recovery from Covid-19 that supports a just transition. In addition to reducing the environmental impact of our own operations, we are leaning in to support businesses across the UK, engaging with them on the transition as well as providing innovative sustainable financing. We are doing this whilst helping young people develop the skills needed for a sustainable future through our long-term charitable partnerships.”

António Horta-Osório, CEO, Lloyds Banking Group: “We warmly welcome the Grantham Institute’s Just Transition report, highlighting the importance of a socially and economically fair transition towards a low-carbon future. We will do all we can to ensure a Just Transition for the UK, as we work to finance a green future together.”

Joe Garner, CEO, Nationwide Building Society: “Responding to climate change is a central challenge of our generation. The principle of a just transition is therefore vital. Nationwide Building Society is already supporting our members to help fund greening their homes. With the Government’s new Green Homes Grant we will work with members to ensure as many people as possible have access to funds to reduce carbon emissions from their homes.”

Alison Rose, CEO, NatWest Group: “Early this year we launched our strategy to be a purposeful bank. NatWest is committed to playing a leading role in addressing the climate challenge while helping people, families and business transition to a low carbon economy. With this in mind we support the LSE Grantham Financing Climate Action with Positive Social Impact report and commit to playing an active part in the Just Transition Alliance.”

Bevis Watts, CEO, Triodos Bank UK: “As a bank founded on the mission of protecting and promoting quality of life for all, we entirely support this call for the banking sector to adopt a just transition. The true environmental and social impacts of our financial choices need to be fully embedded into our decision-making as an industry. It is possible for us to act on the climate crisis to be stronger, and more resilient, but only if we acknowledge the fundamental changes our banking system must make to better serve people and planet.”

Margaret Willis, CEO, Unity Trust Bank: “Unity follows a strategy that generates sustainable financial returns and positive societal impact. We are pleased to give our support to the recommendations contained in the Just Transition report, our commitment includes supporting the principles of the circular economy and developing best practices linking environmental investment, job creation and sustainable development.”