Making the Future - second Just Transition Commission: initial report

Cross-cutting themes

Finance

Context

Finance is both a sector in itself as well as a vital enabler of action across the whole of the economy. It is crucially important for realising Scotland's national Just Transition Outcomes, notably around business and the economy as well as a fair distribution of costs and benefits. For Scotland to deliver a fairer, greener future for all, there needs to be a transformation of the financial system so that it simultaneously serves the country's climate goals and tackles inequality and injustice. This means mobilising public, private and community finance in new and ambitious ways.

Strategic priorities

Closing the strategic investment gap: The long-term success of a just transition will critically depend on delivering high quality investment of at least 2 per cent of GDP per annum to create jobs, tackle inequality, and build the resilient social and physical infrastructure needed for a net zero economy in a climate-changed world. As it stands, we are not meeting this target and annual net zero investment needs to grow more than five-fold by 2030. In total, there is at least a £35bn investment gap by 2040/45.. We recognise the real limitations of reserved policy levers on financing the just transition, and encourage the Scottish Government to propose an expansion of fiscal and monetary levers in its review of the Smith Commission with the UK Government. At the same time, the Scottish Government should fully exercise what powers it does have now to set the foundations for a transformative just transition.

Delivering an immediate investment-led recovery: In the wake of the pandemic and in the midst of the global crises triggered by Russia's invasion of Ukraine, it is critically important that governments take an ambitious investment-led approach to a sustainable and inclusive recovery in the year ahead. At a time of rising interest rates and falling investment confidence, one of the biggest risks to national and global climate action is austerity, which will cut off routes to a more stable, equal and ecologically sustainable future.

Exercising public financial leadership: Public financing needs to play a leadership role. The economy-wide priority of just transition should be embedded across all public finance spending in Scotland. The Scottish Government have already allocated funding for buildings, transport, clean technology and nature as well as the Green Investment Portfolio and the Just Transition Fund. There is the risk, however, that the full potential of Fair Work standards for public spending are not being realised. In addition, more is needed to maximise the anchor potential of the Scottish National Investment Bank, to set market standards and develop real world applications for communities, households and business

Mobilising private investment: Scotland has the potential to become a globally recognised hub for financing net zero through a just transition. Many of the largest financial institutions operating in Scotland, including banks, fund managers and pension funds, have adopted voluntary commitment to net zero (for example through the Glasgow Finance Alliance for Net Zero). A growing number are also pledging to support the just transition, but they lack operational guidance and metrics. There is a wider risk that these commitments and pledges will not be followed up with credible plans with clear short-, medium- and long-term actions. Publication of net zero plans will become mandatory in the UK for major businesses and financial institutions, creating an opportunity for embedding just transition principles.

Responding to local needs: One of the weaknesses of the current financial system is its lack of responsiveness to local needs and priorities. The place-based nature of the just transition makes it essential that public and private finance become more attuned to local needs across the country. At the local and regional level, there is a lack of capacity to develop bankable pipelines of climate investments that could deliver a just transition. Tackling this means promoting community-based financial initiatives and institutions to ensure local ownership, voice and accountability and to enable SMEs to flourish. This includes increasing community energy investment as well as increasing financing for a locally-led restoration of nature. Here, the Government's interim principles for responsible investment in natural capital provide a starting point.

Recommendations

• A clear capital raising plan is needed that sets out how the investment gap will be closed, proactively mapping out the direction of public and private investment to ensure a just transition for the future Scottish economy.
• The Scottish Government should identify immediate opportunities in 2022 and 2023 to prioritise, bring forward and potentially increase climate and just transition financing to sustain investment by business and citizens, as well as reversing spending cuts where possible.
• The application of Fair Work provisions to public spending in Scotland and the catalytic effect on the wider economy needs to be reviewed as a key lever for the just transition. The Scottish Government should also review the Scottish National Investment Bank's first 18 months of operation to understand progress, shortcomings and ways forward to realise its mission to support the just transition.
• The Scottish Government should ensure that financial institutions operating in Scotland are embedding just transition principles into their net zero and resilience plans. This could include sector-specific goals to address social priorities across agriculture, buildings, energy, industry and transport. The Scottish Government could also initiate the development of just transition metrics for financial institutions, bringing together the work of the Just Transition Commission and the Scottish Taskforce for Green and Sustainable Financial Services.
• The Scottish Government should develop a place-based strategy for financing the just transition, including targets for financial inclusion as well as for promoting community-based initiatives across all sectors.

International dimensions

Context

As a global challenge that knows no borders, responding to climate change requires a globally coordinated and cooperative approach. However, climate change is not the only challenge facing global governance; after decades of persistent underdevelopment in the Global South and economic stagnation and instability across the hyper-globalised world, the unprecedented shock of the pandemic and now the fallout of conflict threaten to completely derail economic, social and climate ambitions. Multilateralism has rarely faced more challenging circumstances.

In this context and in the aftermath of the commitments made towards a just transition at COP26 in Glasgow, Scotland can be a voice for multilateralism, internationalism, and climate justice, at home and abroad. As geopolitical strains risk governments and private actors backsliding on their commitments, the Scottish Government can be a voice for raising ambition domestically, at COP27 and beyond.

Strategic priorities

Do no harm: Commitment to an international just transition means that Scotland's just transition should not be a trigger for negative economic, climate or social outcomes in other parts of the world, particularly in the Global South where people are already bearing the disproportionate burden of a crisis they did not create. Scotland's national just transition strategy must ensure that objectives are not met by transferring carbon emissions, exploitation, human rights abuses or economic precarity to other jurisdictions.

Voice and diplomacy: The Scottish Government has already shown leadership on an international just transition, for example in championing a Loss and Damage Finance Facility at COP26 and establishing an international Just Transition Taskforce with members of the Under 2 Coalition. As well as expanding these diplomatic efforts, Scotland can become a champion of just transition solidarity, working through the tensions and contradictions that emerge in forging different climate strategies in an interdependent world, to arrive at outcomes that maximise mutual prosperity. This should include working to transform global governance in different arenas to deliver on collective goals. In committing to an international just transition, the Scottish Government can champion a renewed multilateralism with core principles of interdependence, sustainable development, and climate justice. As a constituent nation of the United Kingdom, Scotland can use its voice to promote reforms of international economic and climate governance which facilitate the necessary policy and fiscal space for respective just transitions.

Material Support: Scotland's current position as an advanced economy was gained through the historic exploitation of fossil fuels, and indeed the natural resources of formerly colonised regions. In line with the UNFCCC principle of Common but Differentiated Responsibilities and Respective Capabilities, there is a duty for Scotland to move faster in cutting emissions and to use our voice and resources to create an enabling environment for every region and nation to achieve a just transition. As well as releasing budgetary support for climate and development goals, the Scottish Government can continue to advocate for the UK government and other advanced economies to meet climate financing needs of developing countries.

Sharing Scottish expertise: Investing in green industries and technologies will open doors to Scottish businesses and institutions to export expertise, knowledge and goods to other jurisdictions. Domestically, these exports can enhance collective prosperity through job creation and tax revenue in support of a just transition. Internationally, low-carbon exports can help to address global mitigation and adaptation challenges by leveraging Scottish expertise and industry to the benefit of other jurisdictions. In line with the UNFCCC technology mechanism, this could also include technology transfer and partnerships with developing countries, to build their own domestic industries and regional resilience.

Recommendations

• An international just transition impact assessment must be integrated into policy-making to test domestic strategies for unintended spill-over effects.
• Diplomatic activity in multilateral and plurilateral arenas on key strategic issues, including the Just Transition Taskforce, should be bolstered, raising ambition on different kinds of climate finance, and reforming global governance to unlock equitable transitions.
• Existing international development strategies must be reviewed to ensure they maximise just transition potential, including poverty eradication and climate action.
• Efforts to disseminate and exchange climate technologies and expertise must be enhanced, for example through the Strathclyde Global Renewables Centre and sector-specific initiatives.

Social infrastructure

Context

The Scottish Government's response to the report of the first Just Transition Commission established the scope for the National Just Transition Planning Framework, noting that "planning can and must go beyond high-emitting industrial sectors to consider all sectors of our economy that will have an important role to play in a transformed, net zero economy." Scotland's social infrastructure primarily includes the care, health and education services that underpin economic performance and sustain the entire workforce. These will be critical for delivery of the Scottish Government's Just Transition Outcomes across the board, and most obviously on adaptation and resilience. Achieving the transformation in a just manner requires that we significantly expand the number of jobs, skills and pay in the low-emitting social infrastructure sector.

Strategic priorities

Investment to build resilience: Meaningful protection for the most vulnerable through a major renewal of Scotland's social infrastructure will be key to resilience and adaptation to the inevitable impacts of climate change. The pandemic and cost-of-living emergencies show disadvantaged groups are disproportionately affected by major shocks and are least able to sustain adverse impacts. A high-quality social infrastructure with strong, durable capacity is essential in order to cushion the inevitable social and economic harms of the major changes ahead. Investment in the creation of skilled and well-paid jobs in social infrastructure will effectively pay for itself, helping to stabilise public finances as expanded employment in this sector increases household and corporate income and tax revenues. Investment here will create a healthier, better educated and more productive population.

Retraining and up-skilling: Decarbonisation means transitioning to a new green economy in which fossil fuel-intensive employment will shrink and economic activity, investment and employment in low- or zero-emitting economic activity such as social infrastructure must expand. Investment in social infrastructure therefore needs to include training, upskilling of the sector and improvements in financial compensation to a level that reflects the complex skills and high demands of employment in the sector.

Tackling systemic inequalities: Ensuring a just transition isn't just about identifying and addressing issues in directly-affected sectors, but considering our economy in the round, including structural weaknesses that can be addressed to boost Just Transition Outcomes. Workers in social infrastructure jobs are critically undervalued, and tend to be women, migrants and ethnic minorities. People more dependent on social infrastructure include women, children, people with disabilities, and the elderly. Investment in social infrastructure has many positive multiplier effects, not least in tackling systemic inequality.

Recommendations

• A New Deal for Social Infrastructure Workers that delivers a package of condition-enhancing measures to demonstrate the value of social infrastructure to the economy and to begin the longer journey of ensuring we have a world-leading social infrastructure labour force.
• A social infrastructure indicator should be included on the National Performance Framework to enhance alignment with Just Transition Outcomes.
• The National Care Service Bill must place caring infrastructure firmly in the public sphere, with a robust public investment plan and a human-rights-based delivery approach at the local, regional and national level.
• Social infrastructure must be a critical pillar of the National Strategy for Economic Transformation, to better mainstream just transition and reflect the fundamental role of social infrastructure in enabling all other economic activities.